Assignment task: A borrower obtained a fully amortising loan of $700,000 at 4.8% p.a. for 25 years. After 5 years, mortgage rates have dropped, so that a fully amortising 20-year loan can be obtained at 4% p.a. The early repayment (exit cost) and other refinancing costs will be $3,800.
Q1. What is the current monthly payment and current total outstanding balance after 5 years?
Q2. Assuming an interest-only mortgage payment, what is the mortgage payment in the first month?
Q3. If interest-only mortgage payment is maintained for five years, explain how this would impact the loan balance.
Q4. Is refinancing desirable?