Ann wants to buy an office building which costs $1,000,000. She obtains a 30 year fully amortizing fixed rate mortgage at 80% LTV, an annual interest rate of 4.5%, with monthly compounding and monthly payments. The mortgage has a 3% prepayment penalty if the borrower prepays in the first 5 years. Suppose Ann makes the required monthly payment for 3 years and prepays after her final monthly payment at the end of 3 years. What is the annualized IRR on Ann’s mortgage

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A: Annual worth distributes present worth into equivalent uniform value over its useful life.

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A: Solution Firstly lets calculate the annual installment Annual installment          = loan amount/…

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A: Here, To Find: Annualized IRR =?

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A:

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A: Please see the next step for the solution

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Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.