A lender is considering what terms to allow on a loan. Current market terms are 9 percent interest for 25 years for a fu
Posted: Fri Jul 01, 2022 7:46 am
A lender is considering what terms to allow on a loan. Currentmarket terms are 9 percent interest for 25 years for a fullyamortizing loan. The borrower, Rich, has requested a loan of$102,000. The lender believes that extra credit analysis andcareful loan control will have to be exercised because Rich hasnever borrowed such a large sum before. In addition, the lenderexpects that market rates will move upward very soon, perhaps evenbefore the loan is closed. To be on the safe side, the lenderdecides to extend to Rich a CPM loan commitment for $96,900 at 9percent interest for 25 years; however, the lender wants to chargea loan origination fee to make the mortgage loan yield 10percent.
Required:
a. What origination fee should the lendercharge?
b. What fee should be charged if it isexpected that the loan will be repaid after 10 years?
Required:
a. What origination fee should the lendercharge?
b. What fee should be charged if it isexpected that the loan will be repaid after 10 years?