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What is the effective borrowing cost

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A mortgage loan of $300,000 is made at an interest rate of 6% with monthly payments for 30 years.

a) What is the monthly debt service? What are the total debt service payments in a year?

b) Show the distribution between interest and principal for years 1 through 5.

c) If the loan is repaid after 5 years, what is the lender's yield (Hint: lender's yield is equivalent to the cost to the borrower)?

d) Suppose the borrower has to pay two discount points at closing. What is the effective borrowing cost (EBC) if the loan is repaid after 5 years?

e) Suppose the borrower has to pay two discount points at closing. What is the EBC if the loan is repaid after 3 years?

f) Suppose the borrower has to pay two discount points at closing and the loan is repaid after 3 years with a prepayment penalty of 2% of the outstanding balance. What is the EBC?

Reference no: EM132804195

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