Question
You are buying a property for $100,000 and want an 80 percent loan for $84,000. A lender indicates that a fully amortizing loan can be
You are buying a property for $100,000 and want an 80 percent loan for $84,000. A lender indicates that a fully amortizing loan can be obtained for 30 years (360 months) at 8 percent interest; however, a loan fee of $3,500 will also be necessary for you to obtain the loan.
a.) How much will the lender actually disburse?
b.) What is the effective cost of financing for the borrower, assuming that the mortgage is paid off after 30 years (full term)?
c.) If you pay off the loan after five years, what is the effective cost of financing? Why is it different from the effective cost of financing in (b)?
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