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Edit question Given the following information, calculate the effective borrowing cost (rounded to the nearest tenth...

Edit question Given the following information, calculate the effective borrowing cost (rounded to the nearest tenth of a percent). Loan amount: $185,000 Term: 30 years, Interest rate: 7.25%, Monthly Payment: $1,262.00, Discount points: $2,500 and Other Closing Expenses: $3,611.

Homework Answers

Answer #1

Original Loan amount is $185,000, Discount points is $2,500 and Other Closing Expenses $3,611.

So, Total Borrowing = $185,000 + $2,500 + $3,611

= $191,111.

Value of Total Borrowing is $191,111.

Monthly Payment on Total borrowing cost is calculated in excel and screen shot provided below:

Monthly Payment on Total borrowing cost is $1,303.71.

Original Loan amount is $185,000 and you have to pay $1,303.71 monthly for 30 year because of closing cost and Discount point. So, effective cost of borrowing is calculated in excel and screen shot provided below:

Effective monthly rate on loan is 0.63%.

Effective annual rate = [(1 + 0.63%) ^ 12] - 1

= 1.0785 - 1

= 7.85%

effective borrowing cost is 7.85%.

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