13. John wants to buy a property for $105,000 and wants an 80 percent loan for $84,000. A lender indicates that a fully amortizing loan can be obtained for 30 years (360 months) at 8 percent interest; however, a loan origination fee of $3,500 will also be necessary for John to obtain the loan. a. How much will the lender actually disburse? b. What is the effective interest rate for the borrower, assuming that the mortgage is paid off after 30 years (full term)? c. If John pays off the loan after five years, what is the effective interest rate? Why is it different from the effective interest rate in (b)? d. Assume the lender also imposes a prepayment penalty of 2 percent of the outstanding loan balance if the loan is repaid within eight years of closing. If John repays the loan after five years with the prepayment penalty, what is the effective interest rate?
13. John wants to buy a property for $105,000 and wants an 80 percent loan for $84,000. A lender indicates that a fully amortizing loan can be obtained for 30 years (360 months) at 8 percent interest; however, a loan origination fee of $3,500 will also be necessary for John to obtain the loan. a. How much will the lender actually disburse? b. What is the effective interest rate for the borrower, assuming that the mortgage is paid off after 30 years (full term)? c. If John pays off the loan after five years, what is the effective interest rate? Why is it different from the effective interest rate in (b)? d. Assume the lender also imposes a prepayment penalty of 2 percent of the outstanding loan balance if the loan is repaid within eight years of closing. If John repays the loan after five years with the prepayment penalty, what is the effective interest rate?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:13. John wants to buy a property for $105,000 and wants an 80 percent loan for $84,000. A lender
indicates that a fully amortizing loan can be obtained for 30 years (360 months) at 8 percent
interest; however, a loan origination fee of $3,500 will also be necessary for John to obtain the loan.
a. How much will the lender actually disburse?
b. What is the effective interest rate for the borrower, assuming that the mortgage is paid off
after 30 years (full term)?
c. If John pays off the loan after five years, what is the effective interest rate? Why is it different
from the effective interest rate in (b)?
d. Assume the lender also imposes a prepayment penalty of 2 percent of the outstanding loan
balance if the loan is repaid within eight years of closing. If John repays the loan after five
years with the prepayment penalty, what is the effective interest rate?
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