A lender extends a mortgage with the following terms: $130,000 at 8 percent for 30 years, monthly payments. However, the lender wishes to earn an APR of 8.50 percent.
A. How many discount points must the lender charge? (No other financing costs are present.) B. How many points must the lender charge if the loan is expected to be repaid after ten years if the effective cost is 8.50 percent?
A. 130,000 - Discount Points = 953.89 (PVAF8.5/12,360)
Discount Points = $5,942.62 or 4.57 points
B. 130,000 - Discount Points = 953.89 (PVAF8.5/12,120) + 114,042 (PVF8.5/12,120)