Home loans typically involve ldquopointsrdquo which are, Ask an Expert

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Home loans typically involve “points,” which are fees charged by the lender. Each point charged means that the borrower must pay 1% of the loan amount as a fee. For example, if the loan is for $170,000 and 4 points are charged, the loan repayment schedule is calculated on a $170,000 loan but the net amount the borrower receives is only $163,200. Assume the interest rate is .75% per month. What is the effective annual interest rate charged on such a loan, assuming loan repayment occurs over 156 months? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Use a financial calculator or Excel.)

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Category:- Financial Management
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