Question
Luis took a fixed-rate mortgage loan 5 years ago for $120,000 at 7% i nterest rate for 15 years (monthly compounding loan). Now a new
Luis took a fixed-rate mortgage loan 5 years ago for $120,000 at 7% interestrate for 15 years (monthly compounding loan). Now a new lender offers him aloan at 5% for 10 years, with a loan amount being $92,895, which is exactly the outstanding loan balance of the existing loan. If Luis refinances the existing loan,a prepayment penalty of3% will be applied. Also, the new loanhas a loanfee of $3,000. If Luis plans to hold the new loan for 10 yearsand he hastopay the refinancing fees out ofhis pocket, what is the effective interest rate for the new loan?
| A. | 6.41% |
| B. | 6.62% |
| C. | 6.26% |
| D. | 6.12% |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
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
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Financial Management for Public, Health and Not-for-Profit Organizations
Authors: Steven A. Finkler, Daniel L. Smith, Thad D. Calabrese, Robert M. Purtell
5th edition
1506326846, 9781506326863, 1506326862, 978-1506326849
