Yesterday, I tried during the whole day to solve that problem:
You have been living in the house you bought 6 years ago for $250,000. At that time, you took out a loan for 80% of the house at a fixed rate 25-year loan at an annual stated rate of 9.5%. You have just paid off the 72th monthly payment. Interest rates have meanwhile dropped steadily to 6.0% per year, and you think it is finally time to refinance the remaining balance. But there is a catch. The fee to refinance your loan is $4,000. Should you refinance the remaining balance? How much would you save/lose if you decided to refinance?
Yes, gain $49,229.73
Yes, gain $53,229.73
No, lose $49,229.73
No, lose $53,229.73
I found that 'I' could save... $85,334.06.
I used calculators which do that work... Some give the same answer as us. Other ones give different answers.
I must admit that I do not have a clue! I searched a formula and did not find any that looked both complete and easy to understand.
Also, I found on forums that Present Value (PV) was an element to take into account. But Present Value of what ? And when ?
Finally, how does the Principal interfere ?
Could you please :
give your own answer
explain how you reached that conclusion