What would be the real cost of borrowing in the following case? A home equity loan is advertised at 5% compounded annually, however, there is a legal fee of $520 and appraisal fee of $300 to set up the house as collateral. If Jessie needs to borrow $35 000 for one year, at which time will be able to repay the full amount, what is the effective rate of borrowing the $35 000 for the year?