John wants to buy a property for $105,000 and wants an 80% LTV. A lender indicates that a fully amortizing loan can be obtained for 30 years, monthly pay, at 8%; however, a loan fee of $3,500 will also be necessary for John to obtain the loan.

a. How much will the lender actually disburse?

b. What is the borrowers cost, assuming the loan is paid off after 30 years?

c. What is the borrowers cost, assuming the loan is paid off after 5 years? Why is this answer different than the answer in b)?

d. Assume the lender also imposes a prepayment penalty of 2% of the outstanding loan balance if the loan is repaid within the first eight years of closing. If John repays the loan after 5 years, what is the borrowers cost? Is it different from the lenders yield? Why or why not?

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