Question

An investor is considering refinancing a property. The current mortgage has an interest rate of 8.75% and a mortgage balance equal to 45% of the property value due to amortization of the loan and some appreciation in value. However, the investor would like to refinance at an amount equal to 75% of the property value. He has found out that the property can be refinanced at a 75% loan-to-value ratio for 9.5% interest over 15 years. What can be said about the incremental cost of refinancing?
(A) It will be higher than 9.5%
(B) It will be less than 9.5%
(C) It will be equal to 9.5%
(D) Can"t tell without additional information

Answer

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