Your local lender offers you a fixed-rate mortgage with the following terms: $220,000 at 4.75% for...

Your local lender offers you a fixed-rate mortgage with the following terms: $220,000 at 4.75% for 30 years, monthly payments. The lender will charge you two discount points and the loan has a 3% prepayment penalty. A. (1 pt) What is the annual percentage rate (APR) of the loan? Answer: _______ B. (1 pt) How many points are required to yield an APR of 5.25%? Answer: _______

Expert Solution


	Loan Amount	$220,000
	Disount point amount	$4,400	(0.02*220000)
	Net amount received	$215,600	(220000-4400)
	Monthly interest rate=(4.75/12)%	0.003958333
	Number of months of mortgage	360	(30*12)
	Monthly Payment	$1,147.62	(Using PMT function with Rate=0.0039583, Nper=360,PV=-220000)
	Monthly effective rate	0.41048%	(Using RATE function with Nper=360,Pmt=1147.62,Pv=-215600)
	Annual Percentage Rate	4.93%	(0.41048*12)
A	Annual percentage rate (APR) of the loan	4.93%

B	Points Required to Yield APR of 5.25%

	Monthly interest required =(5.25/12)%=	0.004375
	Monthly mortgage payment	$1,147.62
	Number of months	360.00
	Effective amount of loan	$207,826	(Using PV function with Rate=0.004375, Nper=360,Pmt=-1147.62)
	Actual Loan amount	$220,000
	Discount point amount	$12,174	(220000-207826)
	Percentage of Loan	5.5%	(12174/220000)
	Number of discount points required to yield APR of 5.25%	5.5

jeff jeffy answered 2 years ago

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