Question
A lender is considering what terms to allow on a loan. Current market terms are 9 percent interest for 25 years for a fully amortizing
A lender is considering what terms to allow on a loan. Current market terms are 9 percent interest for 25 years for a fully amortizing loan. The borrower, Rich, has requested a loan of $112,000. The lender believes that extra credit analysis and careful loan control will have to be exercised because Rich has never borrowed such a large sum before. In addition, the lender expects that market rates will move upward very soon, perhaps even before the loan is closed. To be on the safe side, the lender decides to extend to Rich a CPM loan commitment for $106,400 at 9 percent interest for 25 years; however, the lender wants to charge a loan origination fee to make the mortgage loan yield 10 percent.
Required:
a. What origination fee should the lender charge?
b. What fee should be charged if it is expected that the loan will be repaid after 10 years?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
a To calculate the origination fee we need to find the difference between the loan amount and the pr...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Document Format ( 2 attachments)
663df0c764c06_960864.pdf
180 KBs PDF File
663df0c764c06_960864.docx
120 KBs Word File
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started