John wants to buy a property for $105,000 and wants an 80% loan. The lender indi
ID: 2772969 • Letter: J
Question
John wants to buy a property for $105,000 and wants an 80% loan. The lender indicates that a fully amortizing loan can be obtained for 30 years at 12% MEY, with loan origination fees (all lender controlled fees) of $3,500.
[1] How much will the lender actually disburse?
[3] What is the effective interest cost to the borrower, assuming that the mortgage is paid off after 30 years?
[2] If John pays off the loan after 5 years, what is the effective interest charge? Why is it different from the APR in b?
[2] Assume the lender also imposes a prepayment penalty of 2% of the outstanding balance if the loan is repaid within the first 8 years of closing. What is the effective cost of the loan if John repays after 5 years?
Explanation / Answer
Solution.
1. Actual amount disbursed by lender = $105,000 x 80% = $84,0000
= $84,0000 - $3,500
= $80,500
3. This is the effective interest cost to the borrower.
2. pays off the loan after 5 years, what is the effective interest charge.
4.
prepayment penalty of 2% of the outstanding balance.
= 158,943 x 2% = 3178.86
=$158,943 + $3178.86
total payment amount = $162,121.86
Cost of loan = $17,886 + $3178.86 = $21,064.86.
Year Loan Amount Rate Interest Amount 1 $87,500 12.68% $ 11,095 $ 98,595 2 $ 98,595 12.68% $ 12,502 $ 111,097 3 $ 111,097 12.68% $ 14,087 $ 125,184 4 $ 125,184 12.68% $ 15,873 $ 141,057 5 $ 141,057 12.68% $ 17,886 $ 158,943 6 $ 158,943 12.68% $ 20,154 $ 179,097 7 $ 179,097 12.68% $ 22,710 $ 201,807 8 $ 201,807 12.68% $ 25,589 $ 227,396 9 $ 227,396 12.68% $ 28,834 $ 256,230 10 $ 256,230 12.68% $ 32,490 $ 288,720 11 $ 288,720 12.68% $ 36,610 $ 325,329 12 $ 325,329 12.68% $ 41,252 $ 366,581 13 $ 366,581 12.68% $ 46,482 $ 413,064 14 $ 413,064 12.68% $ 52,376 $ 465,440 15 $ 465,440 12.68% $ 59,018 $ 524,458 16 $ 524,458 12.68% $ 66,501 $ 590,959 17 $ 590,959 12.68% $ 74,934 $ 665,893 18 $ 665,893 12.68% $ 84,435 $ 750,328 19 $ 750,328 12.68% $ 95,142 $ 845,470 20 $ 845,470 12.68% $ 107,206 $ 952,675 21 $ 952,675 12.68% $ 120,799 $ 1,073,474 22 $ 1,073,474 12.68% $ 136,117 $ 1,209,591 23 $ 1,209,591 12.68% $ 153,376 $ 1,362,967 24 $ 1,362,967 12.68% $ 172,824 $ 1,535,791 25 $ 1,535,791 12.68% $ 194,738 $ 1,730,530 26 $ 1,730,530 12.68% $ 219,431 $ 1,949,961 27 $ 1,949,961 12.68% $ 247,255 $ 2,197,216 28 $ 2,197,216 12.68% $ 278,607 $ 2,475,823 29 $ 2,475,823 12.68% $ 313,934 $ 2,789,757 30 $ 2,789,757 12.68% $ 353,741 $ 3,143,498Related Questions
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