Question

You have been living in the house you bought10 years ago for$500,000.At that time, you took out a loan for 80%of the house at a fixed rate30-year loan at an annual stated rate of6%.You have just paid off the 120th monthly payment. Interest rates have meanwhile dropped steadily to5.50%per year,and you think it is finally time to refinance the remaining balance.But there is a catch.The total fee to refinance your loan is $15,000,when you include all the various costs of refinancing.Shouldyourefinancethe remaining balance fortheremaining20years?How muchwouldyousave/loseif you decided to refinance

Answer 1

Yes, Refinancing is the better option. After playing your 120th installment, your loan obligation is 334,742.9. The remaining 240 EMI installments are 575,568.5(summing all EMIS from 121 to 360 installments). If you refinance at 5.5% for last 20 years, your remaining 240 EMI installments are 552,636.9+15,000=567636.9. Hence a total of 7931.5$ is saved by refinancing.