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RES 334 Week 3 Refinancing Options

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Refinancing Options

Assessing a refinancing opportunity. Calculate a fixed rate mortgage: Chapter 6 Problem #3. An investor obtained a fully amortizing mortgage 5 years ago for \$95,000 at 11 percent for 30 years. Mortgage rates have dropped, so that a fully amortizing 25-year loan can be obtained and 10 percent. There is no prepayment penalty on the mortgage balance of the original loan, but 3 points will be charged on the new loan and other closing costs will be \$2000. All payments are monthly.

• Should the borrower refinance he plans to own the property for the remaining loan term? Assume that the investor borrows only an amount equal to the outstanding balance of the loan.
• Would your answer to part(a) change if he planned to own the property for only five more years?

You are expected to provide a detailed solution to the above referenced problems. Since this assignment is based on calculations only an Excel is required. Make sure to complete all work in your spreadsheet for full credit.