Five years ago you signed a loan contract with a repayment of 12 years at a fixed rate of 7.5%. You have made all your monthly payments so far and at present have a balance of $125000. The current market rate is 6.25% but you are obliged to continue paying your mortgage based on your contractual rate of 7.5%
1) Calculate your monthly payments for the next 7 years.
2) Suppose your lending officer offers you the new 6.25% rate if you pay an extra fee of $7500. Would you take that deal?
3) What is the maximum fee you would pay to switch to the new rate?