Question:
You currently have a 30-year fixed-rate mortgage financed at 7.25% on a $200,000 home. There are 25 years remaining on the mortgage. Your banker friend tells you that for a small fee (2% of the principal borrowed), you can refinance the remaining balance of your mortgage at a fixed rate of 5.75% for 25 years. What is the present value of the benefit (savings) to refinancing?