What is the effective interest rate and the APR

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Reference no: EM131560285

Most lenders charge an up-front fee called origination fee, which is added to what borrower owes and is described as “points,” e.g., 1 point is 1%. The lenders are required by law to account for the origination fee in the APR that discloses the cost of loan.

1. A 30-year mortgage for $220,000 has monthly payment at a 6% nominal annual rate. If a borrower’s loan origination fee is 3 points and it is added to the initial balance, what is the true effective cost of the loan. What is APR?

2. If the house is sold after 6 years and the loan is paid off, what is the effective interest rate and the APR?

3. Graph the effective interest rate as the time to sell the house and pay off the loan varies from 1 to 15 years.

Reference no: EM131560285

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