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Fiancial Management

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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.

  • Financial Management -

    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 = ??

  • Financial Management -

    Thanks for your help :)

  • Financial Management -

    You're welcome.

  • Fiancial Management -

    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%

  • Fiancial Management -

    Thanks :)

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