What is the effective cost of borrowing

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You are considering borrowing the $185,000 you need to purchase your home using a 30-year mortgage with a fixed annual rate of 5%. There are no points, but the loan comes with a prepayment penalty equaling 3% of the remaining mortgage balance.

A)What is the penalty that must be paid if the balance of the loan is repaid after making payments for three years?

B)If the loan balance is repaid after making payments for three years, what is the effective cost of borrowing?

 

Reference no: EM13260508

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