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Example: Suppose a $250,000, 7%, 0 point loan has a prepayment penalty equal to 3% of the remaining balance if the loan balance is paid

Example: Suppose a $250,000, 7%, 0 point loan has a prepayment penalty equal to 3% of the remaining balance if the loan balance is paid off in its entirety in the first 5 years

What is cost of borrowing if the loan is paid off at the end of the 3rd year?

What is the cost of borrowing if the loan is paid off at the end of the 7th year?

Why might points be considered the factor prepayment penalties?

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