9. Tom got a 30 year fully amortizing FRM for $500,000 at 8%, with constant...
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9. Tom got a 30 year fully amortizing FRM for $500,000 at 8%, with constant monthly payments. After 3 years of payments rates fall and he can get a 27 year FRM at 5%, but he must pay 7 points and S20000 in closing costs to get the new loun. Think of the refinancing decision as an investment for Tom, he puys a fee now but saves money in the future in the form of lower payments. What is the IRR of refinancing for Tom assuming he stays until maturity? 10. In 09, what is the IRR of refinancing for Tom assuming he prepays the new loan 5 years after refinancing? (Clarification: Tom will prepay the new loan 315 8 years after the house is purchased)
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