Problemsome lenders charge an up-front fee on a loan which, Ask an Expert

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Problem:

Some lenders charge an up-front fee on a loan, which is subtracted from what the borrower receives. This is typically described as "points" (where one point equals 1% of the loan amount). The federal government requires that this be accounted for in the APR that discloses the loan's cost.

Required:

(a) A 30-year mortgage for $220000 has monthly payments at a 6% nominal annual rate. If a borrower's loan origination fee is 3% (3 points) and it is added to the initial balance, what is the true effective cost of the loan? What would the APR be?

Explain comprehensively and also provide formulas and calculations.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91147281

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