1. Consider a $250,000 commercial property, 80% LTV with a 30 year term on the mortgage, 8% interest on the mortgage, and 3 points due at closing.

a. What is the monthly payment on this loan?

b. what is the amount received after the points are paid?

c. What is the effective interest rate?

d. what is the effective interest rate if the loan is to be paid off after 8 years instead of 30 years?

2. John wants to buy a property for $105,000 and wants an 80% loan for $84,000. A lender indicates that a fully amortizing loan can be obtained for 30 years with monthly payments, at 8 percent interest; however, a loan origination fee of $3,500 at the closing will be necessary for John to obtain the loan.

a. What is the net amount that the borrower will actually receive?

b. What is the effective interest rate for the borrower, assuming that the mortgage is paid off after the full term of 30 years?

c. If John pays off the loan after 5 years, what is the effective interest rate?

d. Why is your answer in part c different from the effective interest rate in part b above?