Question: You have just purchased a house and have obtained a 30 year $200,000 mortgage with an interest rate of 10%

a. What is your annual payment?

b. Assuming you bought the house on Jan 1, what is the principal balance after 1 year? After 10 years?

c. After 4 years mortgage rates drop to 8 percent for 30 year fixed rate mortgages, you still have the old 10 percent mortgage you signed four years ago and you plan to live in the house for another 5 years, the total cost to refinance the mortgage is $3000. Including legal fees closing costs and points. The rate on a five year CD is 6%. Should you refinance your mortgage or invest the $3000 in a CD. The 6% CD rate is your opportunity cost of capital.