Question: Your father bought an apartment building some years ago. To finance it he took on a $350,000 mortgage at 14-percent interest, which is to be amortized through equal annual payments over 25 years. The mortgage has 8 years left to run. He is offered an 8-year mortgage at 11 percent, but must pay a penalty on the old mortgage of 3-months interest on the outstanding balance if he refinances. This penalty is tax deductible, with the tax shield available at the time the penalty is paid. He plans to increase the new mortgage to cover the penalty. His personal marginal tax rate is 40 percent. Should he undertake the change?