Real Estate Finance

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 at 10 percent. There is no prepayment penalty on the mortgage balance of the original loan, but three points will be charged on the new loan and other closing costs will be $2,000. All payments are

monthly.

1. Should the borrower refinance if 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.

2. Would your answer to part (a) change if he planned to own the property for only five more

   years? 

    

   Instructions: 

   The computations for this problem should determine if the cost of the refinance option makes sense to refi. The analysis and  your conclusions should be stated in a Word doc as answers to part a and part b. Approach the problem as a 

   financial analysis using at least two of the methods previously described in the text and in class. You may use either your calculator or excel. If you utilize excel, please paste your results into the word doc in format that is easy to follow.