Suppose you want to borrow $200,000 to purchase a home. you have found terms that include a 30-year note with a (nominal) rate of 7.0% compounded monthly. The loan includes payment of 2.5 points, which will be paid out of the loan at closing. (One point is equal to 1% of the loan value).
A.) Calculate the monthly mortgage payment.
B.) How much interest is paid in the 2nd month's payment?
C.) How much principal is paid in the 2nd month's payment?
D.) Assuming the points are the only relevant closing costs associated with the loan, what is the APR on this loan?
The key concept to Case D is recognition that you will not have the full $200,000 loan value to apply against the purchase of the home , (due to the points), buyt you will have to ay back $200,000 in principal payments plus the accrued interest.