A borrower is approved for a $80000 mortgage loan at 12% interest with monthly payments over 30 years. The borrower is required to pay 3.5 points.
1. Assume the borrower repays the loan after 5 years. What is the effective borrowing cost?
2. Assume the loan is paid after five years and that the terms of the loan call for a prepayment penalty of 3% of the outstanding loan balance. What is the amount owed to the lender?