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In: Accounting

Five years ago you borrowed $100,000 to finance the purchase of a $120,000 home. The interest...

Five years ago you borrowed $100,000 to finance the purchase of a $120,000 home. The interest rate on the old mortgage loan is 8 percent. Payments are being made monthly to amortize the loan over 30 years. You have found another lender who will refinance the current outstanding loan balance at 5.5 percent with monthly payments for 30 years. The new lender will charge two discount points on the loan. Other refinancing costs will equal $3,500. There are no prepayment penalties associatedwitheitherloan. Youfeeltheappropriateopportunitycosttoapplytothis refinancing decision is 7 percent.

a. What is the payment on the old loan?

b. What is the current loan balance on the old loan (five years after origination)?

c. What would be the monthly payment on the new loan?

d. Should you refinance today if the new loan is expected to be outstanding for five years? Show your calculations.

Please do it as the simplest as you can and if possible please explain it to me as well

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Expert Solution

ekkarill92 answered 1 year ago
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