Question

John smith contracted a 30-year FRM (with monthly amortization) loan of $80,000 at an interest rate of 15% from Bank of America 5 years ago for a residential property. In the meantime, Brookline Savings Bank can refinance the current balance on the loan at interest rate of 14% for a FRM amortized over 25 years. However, he also estimated the total refinancing cost to be $2,525, in addition to the prepayment penalty on the existing loan of 2%.

If John holds the mortgage debt for 25 more years, would you recommend him to refinance? What if he only need the debt for 10 more years from now?

Answer 1

As per amortization table (refer image attached):

If the Mortgage Debt is held for 25 more years the total interest cost is $ 2,24,458.81

In case the loan is refinanced from Brookline Savings Bank at the interest rate of 14% total cost is as follows:

Particulars	Amount in $
Interest @14%	2,06,212.82
Refinance cost	2,525.00
Prepayment penalty @2%	1,579.52
Total Cost	2,10,317.34

Since Refinancing will cost lesser than the current loan we recommend John Smith to avail refinance the loan.

Even if the finance is availed for 10 more years from now Interest at current rate of 15 % will be $73,921.64

In case the loan is refinanced from Brookline Savings Bank at the interest rate of 14% total cost is as follows:

Particulars	Amount in $
Interest @14%	68171.02
Refinance cost	2,525.00
Prepayment penalty @2%	1,579.52
Total Cost	72275.54

	78976.08	'@14%	1226.24
Month	Prinicipal	interest	Payment	Balance
1	304.85	921.39	1226.24	78671.23
2	308.41	917.83	1226.24	78362.82
3	312.01	914.23	1226.24	78050.81
4	315.65	910.59	1226.24	77735.16
5	319.33	906.91	1226.24	77415.83
6	323.06	903.18	1226.24	77092.78
7	326.82	899.42	1226.24	76765.96
8	330.64	895.60	1226.24	76435.32
9	334.49	891.75	1226.24	76100.82
10	338.40	887.84	1226.24	75762.43
11	342.35	883.89	1226.24	75420.08
12	346.34	879.90	1226.24	75073.74
13	350.38	875.86	1226.24	74723.36
14	354.47	871.77	1226.24	74368.89
15	358.60	867.64	1226.24	74010.29
16	362.79	863.45	1226.24	73647.51
17	367.02	859.22	1226.24	73280.49
18	371.30	854.94	1226.24	72909.19
19	375.63	850.61	1226.24	72533.55
20	380.02	846.22	1226.24	72153.54
21	384.45	841.79	1226.24	71769.09
22	388.93	837.31	1226.24	71380.15
23	393.47	832.77	1226.24	70986.68
24	398.06	828.18	1226.24	70588.62
25	402.71	823.53	1226.24	70185.91
26	407.40	818.84	1226.24	69778.51
27	412.16	814.08	1226.24	69366.35
28	416.97	809.27	1226.24	68949.39
29	421.83	804.41	1226.24	68527.56
30	426.75	799.49	1226.24	68100.81
31	431.73	794.51	1226.24	67669.07
32	436.77	789.47	1226.24	67232.31
33	441.86	784.38	1226.24	66790.44
34	447.02	779.22	1226.24	66343.43
35	452.23	774.01	1226.24	65891.19
36	457.51	768.73	1226.24	65433.68
37	462.85	763.39	1226.24	64970.84
38	468.25	757.99	1226.24	64502.59
39	473.71	752.53	1226.24	64028.88
40	479.24	747.00	1226.24	63549.64
41	484.83	741.41	1226.24	63064.82
42	490.48	735.76	1226.24	62574.33
43	496.21	730.03	1226.24	62078.13
44	502.00	724.24	1226.24	61576.13
45	507.85	718.39	1226.24	61068.28
46	513.78	712.46	1226.24	60554.50
47	519.77	706.47	1226.24	60034.73
48	525.83	700.41	1226.24	59508.90
49	531.97	694.27	1226.24	58976.93
50	538.18	688.06	1226.24	58438.75
51	544.45	681.79	1226.24	57894.30
52	550.81	675.43	1226.24	57343.49
53	557.23	669.01	1226.24	56786.26
54	563.73	662.51	1226.24	56222.52
55	570.31	655.93	1226.24	55652.21
56	576.96	649.28	1226.24	55075.25
57	583.70	642.54	1226.24	54491.55
58	590.51	635.73	1226.24	53901.05
59	597.39	628.85	1226.24	53303.65
60	604.36	621.88	1226.24	52699.29
61	611.41	614.83	1226.24	52087.87
62	618.55	607.69	1226.24	51469.33
63	625.76	600.48	1226.24	50843.56
64	633.07	593.17	1226.24	50210.50
65	640.45	585.79	1226.24	49570.05
66	647.92	578.32	1226.24	48922.12
67	655.48	570.76	1226.24	48266.64
68	663.13	563.11	1226.24	47603.51
69	670.87	555.37	1226.24	46932.65
70	678.69	547.55	1226.24	46253.95
71	686.61	539.63	1226.24	45567.34
72	694.62	531.62	1226.24	44872.72
73	702.72	523.52	1226.24	44170.00
74	710.92	515.32	1226.24	43459.07
75	719.22	507.02	1226.24	42739.86
76	727.61	498.63	1226.24	42012.25
77	736.10	490.14	1226.24	41276.15
78	744.68	481.56	1226.24	40531.47
79	753.37	472.87	1226.24	39778.09
80	762.16	464.08	1226.24	39015.93
81	771.05	455.19	1226.24	38244.88
82	780.05	446.19	1226.24	37464.83
83	789.15	437.09	1226.24	36675.68
84	798.36	427.88	1226.24	35877.32
85	807.67	418.57	1226.24	35069.65
86	817.09	409.15	1226.24	34252.55
87	826.63	399.61	1226.24	33425.93
88	836.27	389.97	1226.24	32589.66
89	846.03	380.21	1226.24	31743.63
90	855.90	370.34	1226.24	30887.73
91	865.88	360.36	1226.24	30021.85
92	875.99	350.25	1226.24	29145.86
93	886.20	340.04	1226.24	28259.66
94	896.54	329.70	1226.24	27363.11
95	907.00	319.24	1226.24	26456.11
96	917.59	308.65	1226.24	25538.53
97	928.29	297.95	1226.24	24610.23
98	939.12	287.12	1226.24	23671.11
99	950.08	276.16	1226.24	22721.04
100	961.16	265.08	1226.24	21759.88
101	972.37	253.87	1226.24	20787.50
102	983.72	242.52	1226.24	19803.78
103	995.20	231.04	1226.24	18808.59
104	1006.81	219.43	1226.24	17801.78
105	1018.55	207.69	1226.24	16783.23
106	1030.44	195.80	1226.24	15752.79
107	1042.46	183.78	1226.24	14710.33
108	1054.62	171.62	1226.24	13655.71
109	1066.92	159.32	1226.24	12588.79
110	1079.37	146.87	1226.24	11509.42
111	1091.96	134.28	1226.24	10417.46
112	1104.70	121.54	1226.24	9312.75
113	1117.59	108.65	1226.24	8195.16
114	1130.63	95.61	1226.24	7064.53
115	1143.82	82.42	1226.24	5920.71
116	1157.17	69.07	1226.24	4763.55
117	1170.67	55.57	1226.24	3592.88
118	1184.32	41.92	1226.24	2408.56
119	1198.14	28.10	1226.24	1210.42
120	1210.42	14.12	1224.54	0.00
	Interest	68,171.02
	Refinance	2525.00
	Prepayment	1579.52
		72,275.54

55.30 55.99 56.69 57.40 58.12 142 58.84 59.58 60.32 61.08 61.84 62.62 63.40 64.19 64.99 65.81 66.63 67.46 68.30 69.16 70.02 70.90 71.78 72.68 73.59 74.51 75.44 76.38 77.34 78.31 79.28 80.28 81.28 956.26 1011.56 76445.43 955.57 1011.56 76389.44 954.87 1011.56 76332.75 954.16 1011.56 76275.35 953.44 1011.56 76217.23 952.72 1011.56 7

---

jeff jeffy