Question

You decide to purchase a building for $30,000, you put $5,000 down payment. The banks offers you a 15 yr mortgage requiring annual end of year payments of $3,188. The bank also requires you to pay a 3% loan originatio fee. Compare the annual % rate of interest on this loan.

Answer 1

Your mortgage is for $25,000.

$3,188 * 15 = $4,782

Origination fee = 0.03 * $25,000 = $750

$4,782 + 750 = $5,532

5,532 / 2500 = ??

Answer 2

Since you had to pay a loan origination fee of 3% of 25,000 or $750, you really received only 24,250 at the begining of the loan. Figure the A.P.R using a loan amortization program, as whatever interest rate pays off a $24,250 loan in 15 annual payments of $3,138.

Using the computation tool at
http://www.bretwhissel.net/cgi-bin/amortize
I get an annual percentage rate of 10.0%

Answer 3

Thanks for your help :)

Answer 4

Thanks :)

Answer 5

You're welcome.