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

Question

Business

Athena Small

9 August, 15:36

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

+1

Answers (1)

Know the Answer?

Maddox Parrish · Answer 1

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