A lender is considering what terms to allow on a loan. Current market terms are 9 percent interest for 25 years for a fully amortizing loan. The borrower, Rich, has requested a loan of $116,000. The lender believes that extra credit analysis and careful loan control will have to be exercised because Rich has never borrowed such a large sum before. In addition, the lender expects that market rates will move upward very soon, perhaps even before the loan is closed. To be on the safe side, the lender decides to extend to Rich a CPM loan commitment for $110,200 at 9 percent interest for 25 years; however, the lender wants to charge a loan origination fee to make the mortgage loan yield 10 percent. Required: a. What origination fee should the lender charge? b. What fee should be charged if it is expected that the loan will be repaid after 10 years?
A lender is considering what terms to allow on a loan. Current market terms are 9 percent interest for 25 years for a fully amortizing loan. The borrower, Rich, has requested a loan of $116,000. The lender believes that extra credit analysis and careful loan control will have to be exercised because Rich has never borrowed such a large sum before. In addition, the lender expects that market rates will move upward very soon, perhaps even before the loan is closed. To be on the safe side, the lender decides to extend to Rich a CPM loan commitment for $110,200 at 9 percent interest for 25 years; however, the lender wants to charge a loan origination fee to make the mortgage loan yield 10 percent.
Required:
a. What origination fee should the lender charge?
b. What fee should be charged if it is expected that the loan will be repaid after 10 years?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
