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4 September, 03:45

Your mortgage is a 30-year fixed at 8% on $150,000. You are considering refinancing at 3.5% fixed for 30 years. The bank charges you 1.5% of your debt in closing fees. Approximately how long will it take you to recoup the closing fees from the reduced loan payment amount?

a) 4 months

b) 15 months

c) 2 years

d) 30 years

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Answers (1)
  1. 4 September, 03:59
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    Option A, 4 months

    Explanation:

    Closing fees = 1.5% of the mortgage

    mortgage amount is $150,000

    closing fees = $150,000*1.5%=$2250

    The mortgage monthly payment can be computed using the pmt formula in excel as follows:

    =pmt (rate, nper,-pv, fv)

    rate is the rate per month which is 3.5%/12=0.002916667

    nper is 30 years multiplied by 12 = 360

    pv is the amount of mortgage which is $150,000

    fv is the sum of the interest on mortgage and mortgage amount which is unknown

    =pmt (0.002916667,360,-150000,0) = 673.57

    the final answer=closing fees/monthly payment=$2250 / $673.57 = 3.34 months

    The closest option is 4 months
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