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?

Entrepreneurial Finance
6th Edition
ISBN:9781337635653
Author:Leach
Publisher:Leach
Chapter7: Types And Costs Of Financial Capital
Section: Chapter Questions
Problem 8EP
icon
Related questions
Question
None
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?
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?
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Entrepreneurial Finance
Entrepreneurial Finance
Finance
ISBN:
9781337635653
Author:
Leach
Publisher:
Cengage
Personal Finance
Personal Finance
Finance
ISBN:
9781337669214
Author:
GARMAN
Publisher:
Cengage
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
PFIN (with PFIN Online, 1 term (6 months) Printed…
PFIN (with PFIN Online, 1 term (6 months) Printed…
Finance
ISBN:
9781337117005
Author:
Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:
Cengage Learning