Problem 4-13 John wants to buy a property for $122,500 and wants an 80 percent loan for $98,000. A lender indicates that a fully amortizing loan can be obtained for 30 years (360 months) at 9 percent interest; however, a loan fee of $4,900 will also be necessary for John to obtain the loan. Required: 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? 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?
Problem 4-13 John wants to buy a property for $122,500 and wants an 80 percent loan for $98,000. A lender indicates that a fully amortizing loan can be obtained for 30 years (360 months) at 9 percent interest; however, a loan fee of $4,900 will also be necessary for John to obtain the loan. Required: 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? 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?
PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN:9781337117005
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter7: Using Consumer Loans
Section: Chapter Questions
Problem 9FPE
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Transcribed Image Text:Problem 4-13
John wants to buy a property for $122,500 and wants an 80 percent loan for $98,000. A lender indicates that a fully
amortizing loan can be obtained for 30 years (360 months) at 9 percent interest; however, a loan fee of $4,900 will also be
necessary for John to obtain the loan.
Required:
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?
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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