(15 points) You have been living in the house you bought 10 years ago for $300,000. At that time, you took out a loan for 80% of the house at a fixed rate 15-year loan at an annual stated rate of 9%. You have just paid off the 120th monthly payment. Interest rates have meanwhile dropped steadily to 6% per year, and you think it is finally time to refinance the remaining balance. But there is a catch. The fee to refinance your loan is $4,000. Should you refinance the remaining balance? How much would you save/lose if you decided to refinance?

Answer 1

120 monthly payments = $240,000
That leaves $60,000 yet to be paid
$60,000 at 9% = $60,000 + 5,400 in interest total $65,400
$60,000 at 6% = $3,600 in interest or $63,600 then add the fee and the total is $$67,600

9% = $65,400
6% = $67,600
You would lose $2,200 if you refinanced.