Question

FIND:THE FOLLOWING DATA: FOR THE NEW LOAN :

ANALYSIS

MORTAGE AMOUNT

MORTGAGE PAYMENT

MONTHS TO RECOVER REFINANCING COST

MORTGAGE BALANCE AT RESALE (PRESENT VALUE)

PRINCIPAL REPAID TO RESALE

TOTAL PAYMENTS TO RESALE

TOTAL INTEREST TO RESALE

TAX DEDUCTION ON INTEREST

NET INTEREST COST TO RESALE

INTEREST SAVINGS (COST)

TOTAL SAVINGS COST

DATA ON TABLES ....PERSONAL Marginal tax rate 6% Resale Plan (Months) 60 MORTGAGE TERMS Original Mortgage Amount $150,000.00 Current Mortgage Rate 5.75% Original Term (Years) 20 Months Paid 117 New Mortage Rate 3.00% New Term (YEARS) 15 Points 0 REFINACING FEES Application $200.00 Title $2,000.00 Legal $200.00 Other $10,779.85 Points 0 Total Fees $13,179.85 ANALYSIS CURRENT PROPOSED Mortgage Amount 97, 703.26 $97,703.26 ANALYSIS Mortgage Payment Months to Recover Refinancing cost Mortage Balance at Resale, Principal Repaid to Resale, Total Payments to Resale Total Interest to Resale Tax Deduction on Interest Net Interest Costo to Resale Interest Savings (COSTS) TOTAL SAVINGS COST (COSTS)

COURSE : FINANCE DATA FOR THE OLD LOAN AND DATA FOR THE NEW LOAN

PERSONAL
MARGINAL TAX RATE	6%
RESALE PLAN (MONTHS)	60

MORTGAGE TERMS	$150,000
ORIGINAL MORTGAGE RATES	5.75
ORIGINAL TERM (YEARS)	20
MONTHS PAID	117
NEW MORTGAGE RATE	3.00%
NEW TERM (YEARS)	15
POINTS	0

REFINANCING FEES
APPLICATION	$200.00
TITLE	$2,000
LEGAL	$200
OTHER	$10,179.85
POINTS	0
TOTAL FEES	$13,179.85

ANALYSIS	CURRENT	PROPOSED
MORTGAGEANALYSIS AMOUNT	$97,703.26	$97,703.26

Answer 1

Soln : Plese refer here the table , completed in all aspects, which is showing that remortgage is not a good option:

ANALYSIS
MORTAGE AMOUNT	150000
MORTGAGE PAYMENT	52296.74
MONTHS TO RECOVER REFINANCING COST	180
MORTGAGE BALANCE AT RESALE (PRESENT VALUE)	97703.26
PRINCIPAL REPAID TO RESALE	97703.26
TOTAL PAYMENTS TO RESALE	180
TOTAL INTEREST TO RESALE	23746
TAX DEDUCTION ON INTEREST	1424.76
NET INTEREST COST TO RESALE	22321.24
INTEREST SAVINGS (COST)	8085
TOTAL SAVINGS COST	13179.85

We can see Interest savings = 8085 < Total fees of refinancing = 13179.85

We have used the excel calculated the EMI of Initial loan using excel PMT(5.75%/12,240,-150000,0) = 1053.13 = monthly payment initially.

Calculated the monthly interest on remaining balance for 240 months , So, with the help of table created in excel we can calculate the interest cost from the month `118 to 240 month.= 31831

Similarly we have calculated the interest cost of new loan for 180 months , using PMT (3%/12, 180,-97703.26,0) and calculate the total interest of 180 months . Tax has been calculated on the same and check the actual interest paid gives us the value of 22321.34

Interest savings cost = 31831-22321.34 = 8085.

Hence, it is lower than the fees paid, so better is to keep old loan in existence.