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Joe buys a house for $425,000. He has $100,000 available for a down payment and wishes to finance the rest. His mortgage broker suggests a 30-year, 6% loan with one point.

a. What would his monthly payment for this loan be?

b. What is the effective interest rate of Joe’s loan?

c. What would the bank’s yield be on Joe’s loan if he prepays after five years?

d. Joe’s sister tells him that her mortgage broker got her a much better deal. She has a 30-year mortgage at 5% and paid three points. Is this a better deal if Joe expects to never prepay? What if he expects to prepay in 10 years?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92678594

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