Some lenders charge an up-front fee on a loan; explain which is subtracted from what the borrower receives. This is typically described as "points" The federal government requires that this be accounted for in the APR that discloses the loan's cost.
1. A 30-year mortgage for $220000 has monthly payments at a 6% nominal annual rate. If a borrower's loan origination fee is 3% and it is added to the initial balance, determine the true effective cost of the loan? What would the APR be?
2. If the house is sold after 6 years and the loan is paid off, calculate the effective interest rate and APR?
3. Graph the effectual interest rate as the time to sell house and pay off loan varies from 1 to 15 years?