Amelia is looking to refinance her home loan of $200,000. She has the option of (1)paying no discount points on the loan and paying interest at 7 percent or (2)paying 2 discount points on the loan and paying interest of 6 percent on the loan. Both options require Amelia to make interest-only payments for the first five years of the loan and pay back the loan over the 25 years after that (it is a 30-year loan). Amelia itemizes deductions irrespective of any interest expense she may pay. Amelia's marginal ordinary income tax rate is 32 percent. What is Amelia's break-even point in years? (For simplicity, ignore time value of money concerns.)

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The Answer of Amelia is looking to refinance her home loan of $200,000. She has the option of (1)paying no discount points on the loan and paying interest at 7 percent or (2)paying 2 discount points on the loan and paying interest of 6 percent on the loan. Both options require Amelia to make interest-only payments for the first five years of the loan and pay back the loan over the 25 years after that (it is a 30-year loan). Amelia itemizes deductions irrespective of any interest expense she may pay. Amelia's marginal ordinary income tax rate is 32 percent. What is Amelia's break-even point in years? (For simplicity, ignore time value of money concerns.)

Amelia Is Looking to Refinance Her Home Loan of $200,000