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    Mortgage Points

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    Home loans typically involve "points", which are fees charged by the lender. Each point charged means that the borrower must pay 1 percent of the loan amount as a fee. For example, if the loan is for $100,000, and two points are charged, the loan repayment schedule is calculated on a $100,000 loan, but the net amount the borrower receives is only $98,000. What is the effective annual interest rate charged on such a loan assuming loan repayment occurs over 360 months? Assume the interest rate is 1 percent per month.

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    Solution Preview

    For this loan, we use 100,000 as the present value to compute the mortgage.
    Then the monthly interest rate = 1%
    Number of months = 360
    By a ...

    Solution Summary

    This Solution contains calculations to aid you in understanding the Solution to this question.

    $2.19

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