Determine effective cost of refinancing, Finance Basics

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Determine effective cost of refinancing

Problem:

A borrower made a mortgage loan 7 years ago for $160,000 at 10.25% interest for 30 years. The loan balance is now $151,806.62 and rates for this amount are currently 9.0% for 23 years. Origination fees and closing costs are $4,500 and closing costs are not financed by the lender.

Required:

What is the effective cost of refinancing?

9.0%
10.85%
15.32%
9.39%

Note: Provide support for your rationale.

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Finance Basics: Determine effective cost of refinancing

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Finance Basics: Determine effective cost of refinancing

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