Four years ago, Emily secured a bank loan of $200000 to help finance the purchase of an apartment in Boston. The term of the mortgage is 30 years, and the interest rate is 9.5% per year compounded monthly. Because the interest rate for a conventional 30 years’ home mortgage has now dropped to 6.75% per year compounded monthly, Emily is thinking of refinancing her property. a) What is Emily’s current monthly mortgage payment? b) What is Emily’s current outstanding principal? c) If Emily decides to refinance her property by securing a 30 years’ home mortgage loan in the amount of the current outstanding principal at the prevailing interest rate of 6.75% per year compounded monthly, what will be her monthly mortgage payment?

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Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.