Some Home Loans Involve "Points," Which Are Fees Charged by the Lender.Each

question 75

Essay

Some home loans 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 0.5 point is charged on a $100,000 loan, the loan repayment schedule is calculated on the $100,000 loan, but the net amount the borrower receives is only $99,500.What is the effective annual interest rate charged on such a loan, assuming that loan repayment occurs over 360 months, and that the interest rate is 1 percent per month?

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