You Have Just Obtained a $150,000 10-Year 6% Fixed-Rate Mortgage

question 56

Essay

You have just obtained a $150,000 10-year 6% fixed-rate mortgage.The mortgage is amortized over 25 years.The interest rate is compounded semi-annually and you make monthly payments at the end of each month.
Immediately after you signed the paperwork, mortgage rates dropped to 5%.Your bank has offered you the opportunity to renegotiate the mortgage for a penalty of $10,000.Should you take this opportunity? Assume your opportunity cost equals the mortgage rate.

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Definitions:

Income Statements

A financial statement that shows a company's revenues and expenses over a specific period, resulting in net profit or loss.

Unusual Nature

Characteristics or occurrences that are not common or expected in a typical context.

Infrequent Occurrence

Events or transactions that do not happen often and, therefore, are not expected to recur in the foreseeable future.

Major Restructuring

A significant organizational change involving the modification of a company's operations, often including downsizing, cost-cutting measures, or strategic redirection to improve efficiency and performance.