John wants to buy a property for $105,000 and wants an 80 percent loan for $84,000. A lenderindicates that a fully amortizing loan can be obtained for 30 years (360 months) at 6 percentinterest; however, a loan 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 APR for the borrower, assuming that the mortgage is paid off after 30 years (fullterm)?c. If John pays off the loan after five years, what is the effective interest rate? Why is it differ-ent from the effective interest rate in (b)?d. Assume the lender also imposes a prepayment penalty of 2 percent of the outstanding loanbalance if the loan is repaid within eight years of closing. If John repays the loan after fiveyears with the prepayment penalty, what is the effective interest rate?
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 6 percent
interest; however, a loan 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 APR 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 differ-
ent 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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