You financed a property acquisition with a $100,000, 30-year, 6.0% fixed rate mortgage (FRM) with monthly compounding and monthly payments. The loan is fully amortizing. The loan has a $1,000 loan origination fee. The lender expects the borrower to repay the loan, without penalty, at the end of 5 years.

Use tab Scenario 1 to solve this problem.

What is the monthly payment?

What is the mortgage balance in 5-years?

What is the effective borrowing cost (yield to the lender) on the loan?

If, instead, the lender targets a yield of 6.80%, how much should the lender charge as a prepayment penalty?

Original loan amt Loan term m i Loan orig. fee Holding period Target yield $100,000 30 years 12 payments per year 6.00% $1,000 5 years 6.80%