1. How many points must a lender charge for a 5 percent, 30-year note to achieve a yield of 6%? (Though the loan amount does not matter, assume a $100,000 loan for computations)  A. Assume the borrower holds the note for the entire term

B. Assume the borrower holds the note for 5-years How does the prepayment assumption affect the lender’s yield?

2. You are offered a bullet loan of 250,000 at 6% for 36 months with 2 points. What is your expected financing cost expressed as an EAR assuming you make monthly interest only payments and repay the loan at month 36?

If you choose to make payments of $2000 per month, and then repay the balance at month 36, what will your expected financing costs (expressed as EAR) be?

Why are these different?

Answer rating: 100% (QA)

The lender charges points ie fees at the beginning of the loan The borrower then has to pay a lower ... View the full answer