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Some lenders charge an up-front fee on a loan, which is added to what the borrower owes. This is typically described as points (where one
Some lenders charge an up-front fee on a loan, which is added to what the borrower owes. This is typically described as "points" (where one point equals 1% of the loan amount). The federal government requires that this be accounted for in the Annual Percentage Rate (APR) that discloses the loan's cost. Assuming that you take a 30-year mortgage for $220,000 with monthly payments at a 6% nominal annual rate. A borrower's loan origination fee of 3% is added to the initial balance of the loan. (a) What is your monthly payment? (b) If you keep the mortgage until it is paid off in 30 years, what is the true effective rate of the loan? c) If the loan is paid off, what is the effective interest rate? d) Graph the effective interest rate as the time to pay off the loan varies from 1 to 15 years
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