Calculate what is the effective interest rate on the loan

Reference no: EM131948566

Question: A borrower has a 30 year fully amortizing FRM, with a $300,000 balance, 4.5% rate. There is a 3% prepayment penalty on this loan if it is repaid before 5 years. After 5 years of holding this loan, market interest rates have dropped and the borrower is considering a refinance. A 25 year fully amortizing FRM is available with a 3% rate, and has $3,000 in origination fees. The borrower plans to pay all of the fees associated with repaying the old loan and originating the new loan upfront in cash. If the borrower plans to hold the new loan until maturity, what is the effective interest rate on this loan? (Round to 2 decimal places; if your answer is ten and half percent, enter 10.50.)

Reference no: EM131948566

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