Jason Bradley’s uncle, Maurice, is buying a $248,500 home in Mississippi. His mortgage lender requires a 20% down payment and will finance the remainder for 30 years at 5%. Closing costs will be 1% origination fee, 1 ¼ point, mortgage insurance premium of $2,400. Other loan costs will include a pest inspection fee of $175, appraisal fee of $295, credit report fee of $80, title insurance premium of $320, and recording fees of $65. There will also be money collected for the escrow account in the amount of $875. What is the reportable APR? Round to the nearest hundredth percent.

Question

Jason Bradley’s uncle, Maurice, is buying a $248,500 home in Mississippi. His mortgage lender requires a 20% down payment and will finance the remainder for 30 years at 5%. Closing costs will be 1% origination fee, 1 ¼ point, mortgage insurance premium of $2,400. Other loan costs will include a pest inspection fee of $175, appraisal fee of $295, credit report fee of $80, title insurance premium of $320, and recording fees of $65. There will also be money collected for the escrow account in the amount of $875. What is the reportable APR? Round to the nearest hundredth percent.

Answer 1

To calculate the reportable APR (Annual Percentage Rate), we need to consider the total cost of the loan, including the closing costs and fees.

1. Calculate the down payment:
The down payment is 20% of the home price, which is $248,500 * 0.20 = $49,700.

2. Calculate the loan amount:
The loan amount is the remaining balance after the down payment, which is $248,500 - $49,700 = $198,800.

3. Calculate the monthly payment:
To calculate the monthly payment on a 30-year loan at 5%, we can use a loan amortization formula or a mortgage calculator. Using a mortgage calculator, the monthly payment is $1,067.36.

4. Calculate the total loan amount over 30 years:
The total loan amount over 30 years is the monthly payment multiplied by the number of months in 30 years (30 years * 12 months/year = 360 months):
$1,067.36 * 360 = $384,249.60.

5. Calculate the total closing costs:
The total closing costs include the origination fee, points, mortgage insurance premium, pest inspection fee, appraisal fee, credit report fee, title insurance premium, recording fees, and escrow account money collected. Adding all these fees:
$2,400 + ($198,800 * 1.25%) + $2,400 + $175 + $295 + $80 + $320 + $65 + $875 = $5,405.

6. Calculate the APR:
The APR is a measure of the total cost of borrowing, including interest and fees, expressed as a yearly percentage. To calculate the APR, we divide the total cost of the loan ($5,405) by the total loan amount over 30 years ($384,249.60) and multiply by 100:
($5,405 / $384,249.60) * 100 ≈ 1.407%.

Therefore, the reportable APR for the loan is approximately 1.41%.