Interest rate effects for refinancing a home loan
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You brought a home a year ago for 250,000, borrowing 200,000 at 10% on a 30 year term loan (with monthly payments). Interest rates have since come down to 9%. You can refinance your mortgage at this rate, with a closing cost that will be 3% if the loan.Your opportunity cost is 8%. Ignore tax effects
How much would interest rates have to go down before it would make sense to refinance this loan (assuming that you are going to stay in the house five years)
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Solution Summary
The solution calculates the required interest rate decrease for it to be worthwhile to refinance a loan.
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