You are thinking about getting a 21 year $100000 mortgage loan at 5.5%. You will

Question

You are thinking about getting a 21 year $100000 mortgage loan at 5.5%. You will incur a total of $3200 for origination fee, points, mortgage insurance and other costs. In addition, you will have to pay the first years hazard insurance premium of $410 and out $360 into an escrow account. You project paying off the loan at the end of 4 years. What is your real APR reflecting early payoff. You are thinking about getting a 21 year $100000 mortgage loan at 5.5%. You will incur a total of $3200 for origination fee, points, mortgage insurance and other costs. In addition, you will have to pay the first years hazard insurance premium of $410 and out $360 into an escrow account. You project paying off the loan at the end of 4 years. What is your real APR reflecting early payoff.

Explanation / Answer

To find out APR with early payoff of term loan

Your real APR reflecting early payoff is 7.21% is because the additional cost incurred are spread over lesser number of years

PV of Loan 100000 Time 21 Early payoff Period 4 Rate 5.50% Additional Cost Origination fee and other cost 3200 Hazard insurance premium 410 escrow account 360 Total Additional cost 3970 Total Loan amount and cost 103970 PMT for Payoff in 4 years -29,662.07 APR with above PMT 7.21%

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