Problem 4-13 John wants to buy a property for $122,500 and wants an 80 percent loan for $98,000. A lender indicates that
Posted: Sun Jun 05, 2022 7:07 am
Problem 4-13
John wants to buy a property for $122,500 and wants an 80
percent loan for $98,000. A lender indicates that a fully
amortizing loan can be obtained for 30 years (360 months) at 9
percent interest; however, a loan fee of $4,900 will also be
necessary for John to obtain the loan.
Required:
a. How much will the lender actually
disburse?
b. What is the APR for the borrower,
assuming that the mortgage is paid off after 30 years (full
term)?
c. If John pays off the loan after five
years, what is the effective interest rate?
d. Assume the lender also imposes a
prepayment penalty of 2 percent of the outstanding loan balance if
the loan is repaid within eight years of closing. If John repays
the loan after five years with the prepayment penalty, what is the
effective interest rate?
John wants to buy a property for $122,500 and wants an 80
percent loan for $98,000. A lender indicates that a fully
amortizing loan can be obtained for 30 years (360 months) at 9
percent interest; however, a loan fee of $4,900 will also be
necessary for John to obtain the loan.
Required:
a. How much will the lender actually
disburse?
b. What is the APR for the borrower,
assuming that the mortgage is paid off after 30 years (full
term)?
c. If John pays off the loan after five
years, what is the effective interest rate?
d. Assume the lender also imposes a
prepayment penalty of 2 percent of the outstanding loan balance if
the loan is repaid within eight years of closing. If John repays
the loan after five years with the prepayment penalty, what is the
effective interest rate?