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Mortgage with Points: Effective Annual Interest Rate

Mortgage with Points.
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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Mortgage with Points. 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 ...

Solution Summary

The solution calculates effective annual interest rate for a home loan where lender charges fees.

$2.19