Question
A lender has offered you a subprime mortgage with monthly payments for $100,000. The lender will charge you 1.00 points to originate this mortgage. For
A lender has offered you a subprime mortgage with monthly payments for $100,000. The lender will charge you 1.00 points to originate this mortgage. For the first two years, your interest rate is 3.75% and your monthly payment is $212.50. After this "teaser" period ends, the mortgage interest rate jumps to 5.50% and the mortgage payment adjusts such that the mortgage fully amortizes after 28 years of this new payment. You expect to hold this mortgage for 60 months in total, including the 24 months of the teaser payment. If the lender also charges you a 2.00% prepayment penalty for paying off your mortgage before 10 years of payments are made, what is the true cost of the mortgage to you?
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