Question

how to solve: Annika can afford to spend $5,000 in closing cost to refinance her home. The lender quotes closing cost of $800 plus 2 points. The house appraised out at $240,000, and she can get an 80% loan. Can Annika afford to refinance?

Answer 1

Yes, Annika can afford to refinance.

Explanation:

Given that the loan amount obtainable is 80% of $240,000

= $240,000 × 0.8 = $192,000

She has 2 points = 0.02

Points charge = Loan amount obtainable × 0.02 = $192,000 × 0.02 = $3,840

Total closing costs = Points charge + lender quoted closing cost = $3,840 + $800 = $4,640

Amount left after paying the total closing cost = $5,000 - $4,640 = $360

We conclude that Annika will have $360 left after the refinance

Answer 2

Yes, she can afford to refinance and still have $360 left.

Explanation:

Loan amount obtainable = $240,000 * 80% = $192,000

2 points = 0.02

Points charge = Loan amount obtainable * 0.02 = $192,000 * 0.02 = $3,840

Total closing costs = Points charge + lender quoted closing cost = $3,840 + 800 = $4,640

Amount left after paying the total closing cost = $5,000 - $4,640 = $360

Therefore, Annika can afford to refinance and still have $360 left.