You decide to purchase a building for $30,000, you put $5,000 down payment. The banks offers you a 15 yr mortgage requiring annual end of year payments of $3,188. The bank also requires you to pay a 3% loan originatio fee. Compare the annual % rate of interest on this loan.

Your mortgage is for $25,000.

$3,188 * 15 = $4,782

Origination fee = 0.03 * $25,000 = $750

$4,782 + 750 = $5,532

5,532 / 2500 = ??

Since you had to pay a loan origination fee of 3% of 25,000 or $750, you really received only 24,250 at the begining of the loan. Figure the A.P.R using a loan amortization program, as whatever interest rate pays off a $24,250 loan in 15 annual payments of $3,138.

Using the computation tool at
http://www.bretwhissel.net/cgi-bin/amortize
I get an annual percentage rate of 10.0%

Thanks for your help :)

Thanks :)

You're welcome.

To compare the annual percentage rate (APR) of interest on this loan, we need to consider the total cost of the loan, including any fees or charges.

First, let's calculate the total cost of the loan:

Loan amount = Purchase price - Down payment
Loan amount = $30,000 - $5,000 = $25,000

Loan origination fee = Loan amount * Loan origination fee rate
Loan origination fee = $25,000 * 0.03 = $750

Total cost of the loan = Loan amount + Loan origination fee
Total cost of the loan = $25,000 + $750 = $25,750

Now, let's calculate the total interest paid over the 15-year term:

Total interest paid = Total payments - Loan amount
Total payments = Annual payment * Loan term
Total interest paid = (Annual payment * Loan term) - Loan amount
Total interest paid = ($3,188 * 15) - $25,000
Total interest paid = $47,820 - $25,000
Total interest paid = $22,820

Next, let's calculate the APR using the following formula:

APR = (Total interest paid / Loan amount) * 100

APR = ($22,820 / $25,000) * 100
APR ≈ 91.28%

Therefore, the annual percentage rate (APR) of interest on this loan is approximately 91.28%.