EBK CFIN
6th Edition
ISBN: 9781337671743
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
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please show how to solve using excel.
Two years ago, Sarah purchased a house of $500,000. Sarah borrows a mortgage with 80% of LTV (loan to value ratio). The interest rate on the mortgage is 6.25%. Payment terms are being made monthly to amortize the loan over 30 years. Sarah found another lender who will refinance the current outstanding loan balance plus all the costs associated with the new loan at 5% with monthly payments for 30 years. Suppose that the new lender will charge 2.5 discount points on the new loan and other refinancing costs will equal $10,000.
a. What is the new loan amount if Sarah chooses to refinance?
b. Should Sarah refinance if she holds the loan for 30 years?
c. If Sarah chooses to refinance, at least how many years should she stay in the house (do not prepay) and Why?
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