John wants to buy a property for $105,000 and wants an 80% loan. The lender indi
ID: 2722654 • Letter: J
Question
John wants to buy a property for $105,000 and wants an 80% loan. The lender indicates that a fully amortizing loan can be obtained for 30 years at 12% MEY, with loan origination fees (all lender controlled fees) of $3,500.
[1] How much will the lender actually disburse?
[3] What is the effective interest cost to the borrower, assuming that the mortgage is paid off after 30 years?
[2] If John pays off the loan after 5 years, what is the effective interest charge? Why is it different from the APR in b?
[2] Assume the lender also imposes a prepayment penalty of 2% of the outstanding balance if the loan is repaid within the first 8 years of closing. What is the effective cost of the loan if John repays after 5 years?
Explanation / Answer
$
Value of Property
1,05,000
Loan
80%
Loan amount
84,000
loan origination fees
3500
1.disburse amount
80,500
Repayment
30 yrs
Rate of Interest
12%
p.a.
Repayment amount
3,86,400
(84000X 12% x 30)+84000
2.Interest cost
302500
Now repayment
5 yrs
3.interest amount
50,400
(84000X 12% x 5)
2.balance after 5 yrs
322000
386400-386400X5/30
prepayment Int
2%
Interest
6440
cost of loan for prepayment
56840
50400+6440
$
Value of Property
1,05,000
Loan
80%
Loan amount
84,000
loan origination fees
3500
1.disburse amount
80,500
Repayment
30 yrs
Rate of Interest
12%
p.a.
Repayment amount
3,86,400
(84000X 12% x 30)+84000
2.Interest cost
302500
Now repayment
5 yrs
3.interest amount
50,400
(84000X 12% x 5)
2.balance after 5 yrs
322000
386400-386400X5/30
prepayment Int
2%
Interest
6440
cost of loan for prepayment
56840
50400+6440
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