John wants to buy a property for $105,000 and wants an 80% LTV loan for $84,000. A fully amortizing loan can be obtained for 30 years at 8 percent interest. A loan origination fee of $3,500 will be necessary to obtain the loan.

c) If John pays off the loan after five years, what is the effective cost of borrowing? Why is it different from the effective cost in part (b)?

d) Assume the lender also imposes a prepayment penalty of 2 percent of the outstanding loan balance if the loan is repaid within eight years of closing. If John repays the loan after five years with the prepayment penalty, what is the effective cost of borrowing?