Should al refinance the loan

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Reference no: EM132160449

Question: When he purchased his home, Al Silva borrowed $280,000 at 10% interest to be repaid in 25 equal annual end-of-year payments. After making 10 payments, Al found he could refinance the balance due on his loan at 9% interest for the remaining 15 years. To refinance the loan, Al must pay the original lender the balance due on the loan, plus a penalty charge of 2% of the balance due; to the new lender he also must pay a $1000 service charge to obtain the loan. The new loan would be made equal to the balance due on the old loan, plus the 2% penalty charge, and the $1000 service charge. Should Al refinance the loan, assuming that he will keep the house for the next 15 years? Use an annual cash flow analysis in working this problem.

Reference no: EM132160449

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