Tom got a 30 year fully amortizing FRM for $500,000 at 8%, with constant monthly payments. After 3 years of payments rates fall and he can get a 27-year FRM at 5%, but he must pay 7 points and $20000 in closing costs to get the new loan. Think of the refinancing decision as an investment for Tom, he pays a fee now but saves money in the future in the form of lower payments. What is the IRR of refinancing for Tom assuming he stays until maturity? In previous question, what is the IRR of refinancing for Tom assuming he prepays the new loan 5 years after refinancing? (Clarification: Tom will prepay the new loan 3+5=8 years after the house is purchased)
Tom got a 30 year fully amortizing FRM for $500,000 at 8%, with constant monthly payments. After 3 years of payments rates fall and he can get a 27-year FRM at 5%, but he must pay 7 points and $20000 in closing costs to get the new loan. Think of the refinancing decision as an investment for Tom, he pays a fee now but saves money in the future in the form of lower payments. What is the IRR of refinancing for Tom assuming he stays until maturity? In previous question, what is the IRR of refinancing for Tom assuming he prepays the new loan 5 years after refinancing? (Clarification: Tom will prepay the new loan 3+5=8 years after the house is purchased)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Tom got a 30 year fully amortizing FRM for $500,000 at
8%, with constant monthly payments. After 3 years of
payments rates fall and he can get a 27-year FRM at
5%, but he must pay 7 points and $20000 in closing
costs to get the new loan. Think of the refinancing
decision as an investment for Tom, he pays a fee now
but saves money in the future in the form of lower
payments. What is the IRR of refinancing for Tom
assuming he stays until maturity?
In previous question, what is the IRR of refinancing for
Tom assuming he prepays the new loan 5 years after
refinancing? (Clarification: Tom will prepay the new loan
3+5=8 years after the house is purchased)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 4 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education