Question: Evelyn took out a 30-year mortgage (monthly payments) for £130,000 at 8.3% and payment number 35 is due today. She is deciding whether she should refinance the outstanding principal by borrowing at today's lower rate of 6.3% an amount that just pays off the old loan. The new loan is for 30 years as of today. The total fees for getting the new loan equal 3.2% of the borrowed principal, and Evelyn will pay the fees today with funds from her savings account.
- How much would she save in terms of monthly payments if she refinances?
- How much does she save in today's dollars? What is the PV of her savings?