Editor's note: This is the second of a two-part series. In the first article of this series, I suggested that the net benefit of a refinance to the borrower should be measured by the net present value (NPV) or net future value (NFV) of all benefits and costs. Whether the refinance increases or decreases the rate at which the loan balance is paid down is an important but often overlooked benefit or cost that should be captured by a refinance calculator. Testing calculators I use two examples to test how a calculator works. In one I assume a significantly lower rate on the new loan and low refinance costs, but the new loan carries a 10-year term and therefore a higher payment than the old loan. The calculator should recognize that this is a great refinance for the borrower who can ...
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