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Suppose you purchased you first house 2 years ago and took out a mortgage for $160,000 with a 6.25% interest rate. The mortgage is a 30 year loan with monthly payments. Today you can refinance the loan at a 5.50% interest rate for a fixed fee of $5,000. Assume that you would only refinance enough to repay the old loan and the cost of refinancing. A - How much would you still owe on the loan after 2 years? Hint: Utilize the CUMPRINC formula here! Balance of old loan today B-Calculate the amount of the new loan and monthly payments of each loan: Monthly Payments Total Loan Periods Life (In Years) Cost Annual Rate Amount Paid Initial Loan 6.25% 30 160,000.00 24 S 5,000 Refinancing 5.50% 30 0 C-Would you refinance today? Old Loan New Loan PV (of monthly payments) NPV of Refinancing Refinance? D-Now, consider you are at the end of year 2, as is the case above, and you expect to move in 4 years time, would you want to refinance? Year Months Time Till Move 48 4 Old Loan New Loan Loan Balance at Move PV at move (consider balance and monthly payments) NPV of Refinancing Refinance? Suppose you purchased you first house 2 years ago and took out a mortgage for $160,000 with a 6.25% interest rate. The mortgage is a 30 year loan with monthly payments. Today you can refinance the loan at a 5.50% interest rate for a fixed fee of $5,000. Assume that you would only refinance enough to repay the old loan and the cost of refinancing. A - How much would you still owe on the loan after 2 years? Hint: Utilize the CUMPRINC formula here! Balance of old loan today B-Calculate the amount of the new loan and monthly payments of each loan: Monthly Payments Total Loan Periods Life (In Years) Cost Annual Rate Amount Paid Initial Loan 6.25% 30 160,000.00 24 S 5,000 Refinancing 5.50% 30 0 C-Would you refinance today? Old Loan New Loan PV (of monthly payments) NPV of Refinancing Refinance? D-Now, consider you are at the end of year 2, as is the case above, and you expect to move in 4 years time, would you want to refinance? Year Months Time Till Move 48 4 Old Loan New Loan Loan Balance at Move PV at move (consider balance and monthly payments) NPV of Refinancing Refinance

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