Organization save each month by refinancing

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Reference no: EM131487574

Ten years ago, an organization took out a $350,000 30-year mortgage with a 4.75% annual interest rate. Now, it is taking advantage of low interest rates to refinance the mortgage. The organization will pay $7,600 in up-front fees for a new 30-year mortgage with a 2.5% annual interest rate. The organization can earn an annual return of 2% on any money it saves.

a) The new mortgage will be $300,000—enough to pay off the old mortgage and buy some new furniture. Ignoring the up-front fees for now, how much will the organization save each month by refinancing? (Hint: Mortgage payments are monthly cash outflows.)

b) How many years will it take the organization to recover the up-front fees? (Hint: Treat the savings as a monthly cash inflow.)

c) How much money will the organization save in total (in today’s dollars) over the next 20 years?

Reference no: EM131487574

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