Question

1. Consider a 6%, 30 year, $200,000 level payment mortgage with a monthly payment of $1,199.10. Assume up front financing cost (includes all costs paid to the lender and third parties except discount points) equal $3,000.
   1. Find the EBC if the borrower repays the loan after two years (assuming no direct points).
   2. What is the EBC if the lender charges one discount point?
   3. What is the EBC if the lender charges 2.5 discount point?

Answer 1

Month	Opening Loan O/s	Interest	Opening Loan o/s + interest	Monthly Payment	Closing Loan O/s
	A	B	C= A+B	D	E = C + D
1	2,00,000.00	1,000.00	2,01,000.00	-1,199.10	1,99,800.90
2	1,99,800.90	999.00	2,00,799.90	-1,199.10	1,99,600.80
3	1,99,600.80	998.00	2,00,598.81	-1,199.10	1,99,399.71
4	1,99,399.71	997.00	2,00,396.71	-1,199.10	1,99,197.61
5	1,99,197.61	995.99	2,00,193.60	-1,199.10	1,98,994.50
6	1,98,994.50	994.97	1,99,989.47	-1,199.10	1,98,790.37
7	1,98,790.37	993.95	1,99,784.32	-1,199.10	1,98,585.22
8	1,98,585.22	992.93	1,99,578.15	-1,199.10	1,98,379.05
9	1,98,379.05	991.90	1,99,370.94	-1,199.10	1,98,171.84
10	1,98,171.84	990.86	1,99,162.70	-1,199.10	1,97,963.60
11	1,97,963.60	989.82	1,98,953.42	-1,199.10	1,97,754.32
12	1,97,754.32	988.77	1,98,743.09	-1,199.10	1,97,543.99
13	1,97,543.99	987.72	1,98,531.71	-1,199.10	1,97,332.61
14	1,97,332.61	986.66	1,98,319.27	-1,199.10	1,97,120.17
15	1,97,120.17	985.60	1,98,105.77	-1,199.10	1,96,906.67
16	1,96,906.67	984.53	1,97,891.21	-1,199.10	1,96,692.11
17	1,96,692.11	983.46	1,97,675.57	-1,199.10	1,96,476.47
18	1,96,476.47	982.38	1,97,458.85	-1,199.10	1,96,259.75
19	1,96,259.75	981.30	1,97,241.05	-1,199.10	1,96,041.95
20	1,96,041.95	980.21	1,97,022.16	-1,199.10	1,95,823.06
21	1,95,823.06	979.12	1,96,802.17	-1,199.10	1,95,603.07
22	1,95,603.07	978.02	1,96,581.09	-1,199.10	1,95,381.99
23	1,95,381.99	976.91	1,96,358.90	-1,199.10	1,95,159.80
24	1,95,159.80	975.80	1,96,135.60	-1,199.10	1,94,936.50
	Total	23,714.90		-28,778.40

Effective Borrowing Cost ('EBC' if no discount and loan is repaid in 2 years) = Interest cost + Front Financing Cost + Direct Cost = $ 23,714.90 + $ 3,000 + 0 = $ 26,714.90

Effective Borrowing Cost ('EBC' if one point discount and loan is repaid through the period) = Interest cost (calculated on basis of above table)+ Front Financing Cost + Direct Cost = $ 231,677.06 + $ 3,000 + ($ 200,000 * 1%) = $ 236,677.06

Effective Borrowing Cost ('EBC' if 2.5 discount and loan is repaid through the period) = Interest cost (calculated on basis of above table) + Front Financing Cost + Direct Cost = $ 231,677.06 + $ 3,000 + ($ 200,000 * 2.5%) = $ 239,677.06