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Question
Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 3 years, Current loan balance: $100,000; Current loan interest: 7%; Current loan mortgage payment: $898.33; Remaining term on current mortgage: 15 years; New loan interest: 5.5%; New loan mortgage payment: $817.08; New loan term: 15 years; Cost of refinancing: $5,000. Assume that the opportunity cost is the interest rate on the new loan (5.5%).A. -$5,000.00
B. -$1,155.27
C. $3,844.73
D. $8,844.73
Answer
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D. The insurance is paid by the borrower and protects the borrower against loss due to lender default.
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