Finance Investing
An investor obtained a fully amortizing mortgage 4 years ago for $100,000 at 12 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 3 points will be charged on the new loan and other closing costs will be $2000. All payments are monthly.
Based on your calculations, respond to the following in a two- to three-page paper:
1. Explain whether or not it would be financially beneficial for the investor to refinance, if the plan is to own the property for the remaining loan term. Assume that the investor refinances an amount equal to the outstanding balance of the loan. Use your calculation(s) as evidence to support your conclusion, and explain how you arrived at the calculation(s) you include.
2. Explain whether or not it would be financially beneficial for the investor to refinance, if the investor planned to own the property for only five more years. Use your calculation(s) as evidence to support your conclusion, and explain how you arrived at the calculation(s) you include.
Your paper must be two to three double-spaced pages, (not including the title and reference pages) and must be formatted according to APA style as outlined in the Ashford Writing Center. Since this assignment is based on calculations, you are required to show all of your work in detail for both part (a) and part (b) by listing the components for each calculation and explaining the calculation taking place to reach the answer. This may be done in the paper, or on an attached Excel spreadsheet. Make sure that all calculation work is shown for full credit. Please use one scholarly source, in addition to the text for this assignment.