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

question 56

Essay

Some home loans involve "points," which are fees charged by the lender. Each point charged means that the borrower must pay 1% 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% per month? (Round the monthly payment amount to 2 decimal places.)

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Definitions:

Confirmation Bias

The inclination to view new information as support for one's pre-existing opinions or hypotheses.

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