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.
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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