Greg Brown borrowed $100,000 to purchase a house. He agreed to repay the loan with equal monthly payments over a 30-year period at a nominal annual interest rate of 6% compounded monthly. The closing cost on the loan is $2,000. Solve, a. What is Gregʼs monthly payment on the loan? b. What is Gregʼs monthly payment if he chooses to finance the closing cost along with the loan? c. What is the effective annual interest rate on the loan if closing costs are included?

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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.