Question: Suppose that you are purchasing a house (loan amount = $200,000) and inquire about the terms for a 30-year fixed-rate mortgage. LOAN A: annual interest

Suppose that you are purchasing a house (loan amount = $200,000) and inquire about the terms for a 30-year fixed-rate mortgage.

LOAN A:

  • annual interest rate of 3.75% with monthly payments and compounding
  • no discount points
  • origination fee of 0.75%
  • $928 in third-party closing costs

What is the Effective Borrowing Cost for loan A assuming no prepayment?

What is the EBC for the loan if we prepay at the end of the third year?

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