Answers for 6-11

For Problems 6-11, assume you buy a home and borrow $150,000 at 4.96\% for 30 years. You pay a total of $7,825 for origination fee, points, and morgage insurance. In addition, you pay other loan costs of $1,685. You pay the first year's hazard insurance premium of $475 and are required to deposit $380 into an escrow account. 6. What is the reportable APR? 7. What is your real APR, assuming the loan is not paid off early? 8. Without calculating a precise APR, decide if, by prepaying the loan, your APR will be more or less than the APR found in Problem 7. 9. Assume you will pay off the loan at the end of 8 years. What is your real APR, reflecting the early payoff? 10. Assume, before you get this loan, you are offered another loan: $150,000 over 30 years at 5.10% interest. You must pay loan costs totaling $5,010 (you save $4,500 in points for getting the higher interest rate loan). Assuming you will pay off the loan at the end of 8 years, what is your real APR on this loan, reflecting the early payoff? 11. Refer to Problems 9 and 10 . Which loan has the lower APR