Question

Two banks in the area offer 30-year, $330,000 mortgages at 5.9 percent and charge a $5,100 loan application fee. However, the application fee charged by Insecurity Bank and Trust is refundable if the loan application is denied, whereas that charged by I.M. Greedy and Sons Mortgage Bank is not. The current disclosure law requires that any fees that will be refunded if the applicant is rejected be included in calculating the APR, but this is not required with nonrefundable fees (presumably because refundable fees are part of the loan rather than a fee).

   

What are the EARs on these two loans? What are the APRs? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

В 1 Insecurity Bank and Trust: 2 Total borrowing $ 335,100 =330000+5100 3 Monthly payment $ 1,987.60 =PMT(5.9%/12,30*12,-335100,0,0) | 4 Interest rate per month 0.5036% =RATE(30*12,-1987.6,330000,0,0) 5 6 APR 6.04% =B4*12 6.21% =(1+B4)^12-1 7 EAR 9 I. M. Greedy and Sons Mortgage Bank: 10 APR 5.90% 11 EAR 6.06% = (1+5.9%/12)^12-1

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