When he purchased his home, al silva borrowed $280,000 at 10% interest to be repaid in 25 equal end-of-year payments. After making 10 payments, Al found he could refinance the balance due on his loan at 9% interest for the remaining 15 years.
To refinance the loan, Al must pay the original lender the balance due on the loan, plus a penalty charge of 2% of the balance due; to the new lender he must also pay a $1000 service charge to obtain the loan. The new loan would be made equal to the balance due on the old loan, plus the 2% penalty charge, and the $1000 service charge. Should Al refinance the loan, assuming he will keep the house for the next 15 years?