What is the effective interest cost to the borrower

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Reference no: EM131177516

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?

[2] What is the effective interest cost to the borrower, assuming that the mortgage is paid off after 30 years?

[3] If John pays off the loan after 5 years, what is the effective interest charge? Why is it different from the APR in b?

[4] 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?

Reference no: EM131177516

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