Jim Thorpe borrows $70,000 toward the purchase of a home at 12 percent interest. His mortgage is for 30 years. a. How much will his annual and monthly payments be? b. How much interest will he pay over the life of the loan? c. How much should he be willing to pay to get out of a 12 percent mortgage and into a 10 percent mortgage with 30 years remaining on the mortgage? Suggestion: Find the annual savings and then discount them back to the present at the current interest rate (10 percent).

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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.