You are considering a thirty-year home loan of $400,000. A prospective lender has quoted an APR of 3.75% (compounded monthly) plus two points. A "point" is one percent of the loan's amount and is deducted from the loan proceeds. Thus, for a $100,000 loan, the lender would only give you $99,000 if the lender charged one point. However, your monthly payment would still be based on the entire $100,000 amount. 1. What would be the amount of your monthly payment on this loan? а. b. How much would the lender actually give you on this loan?

You are considering a thirty-year home loan of $400,000. A prospective lender has quoted an APR of 3.75% (compounded monthly) plus two points. A "point" is one percent of the loan's amount and is deducted from the loan proceeds. Thus, for a $100,000 loan, the lender would only give you $99,000 if the lender charged one point. However, your monthly payment would still be based on the entire $100,000 amount. 1. What would be the amount of your monthly payment on this loan? а. b. How much would the lender actually give you on this loan?

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

Problem 1PS

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A house price of $100,000 can be financed with two loans below with monthly payments. The total origination cost associated with these two loans is $2,000. Loan Amount Term (years) Interest Rate 1st loan $ 80,000 30 5% 2nd loan $ 10,000 30 7% Alternatively, the borrower can borrow one loan in the amount of $90,000 with origination cost of $1,500. What should the interest rate be on the $90,000, 30 years loan with monthly payments so that the borrower will be indifferent between these two alternatives? 4.28% 5.28% 6.28% 7.28%
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