Question

With the following information, compute the Net Benefit of refinancing: Current loan balance: $200,000 Remaining term: 15 years Interest rate: 6.5 percent Old loan monthly payment: $1,742.22 Expected number of future payments you will make: 72 Interest rate available on a new loan: 4.5 percent Cost of refinancing: 5 percent of outstanding balance. Resulting Net Benefit $

Answer 1

The net benefit of refinancing is $23,684.08.

Step-by-step explanation:

To compute the net benefit of refinancing, we need to calculate the savings from the new loan and subtract the cost of refinancing. First, let's calculate the monthly payment for the new loan:

Loan amount = current loan balance = $200,000

Interest rate on new loan = 4.5%

Number of remaining payments = 72

Using a mortgage calculator, the new loan monthly payment is approximately $1,268.73.

Next, let's calculate the total payments for the new loan: $1,268.73 x 72 = $91,410.56.

Now, we need to calculate the cost of refinancing: 5% of the outstanding balance = 0.05 x $200,000 = $10,000.

Finally, we can compute the net benefit: Net Benefit = Savings - Cost of Refinancing = ($1,742.22 x 72) - ($91,410.56 + $10,000) = $125,094.64 - $101,410.56 = $23,684.08.