Terrell is purchasing a house and is evaluating various lenders. The annual inte

Question

Terrell is purchasing a house and is evaluating various lenders. The annual interest rate and point[1] structure is as follows:

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Lender

Interest Rate

Number of Points

Effective

Rate

Effective Rate 7 yrs

VCUCU

3.5%

1.5

URCU

3.25%

2.25

NSUCU

3.75%

0

ODUCU

3.0%

2.75

If Terrell anticipates financing his house for 30 years what is the effective interest rate for each loan? If he pays the loan off in seven years what is the effective interest rate for each loan?

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[1] One point equals one percent of the loan amount.

Lender

Interest Rate

Number of Points

Effective

Rate

Effective Rate 7 yrs

VCUCU

3.5%

1.5

URCU

3.25%

2.25

NSUCU

3.75%

0

ODUCU

3.0%

2.75

Explanation / Answer

Interest Rate Number of Points Loan Amount (assumption) Effective Rate for 30 years Effective Rate 7 yrs VCUCU 3.50% 1.5                1,000,000 0.46% 0.54% URCU 3.25% 2.25                1,000,000 0.43% 0.50% NSUCU 3.75% 0                1,000,000 0.49% 0.57% ODUCU 3.00% 2.75                1,000,000 0.25% 0.46%

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