Question

A savings and loan agreed to make a $65,000 mortgage at 8% interest for 30 years, and charged three points to negotiate the loan. What was the effective yield to the lender?

A, 8.38%
B, 8.35%
C, 8.74%
D, 8.25%

Answer 1

The correct option is A) 8.38%

Explanation:

Consider the provided information.

A savings and loan agreed to make a $65,000 mortgage at 8% interest for 30 years, and charged three points to negotiate the loan.

Total rate of interest is 8%.

Here, 1 point refer 1%. Thus, three points to negotiate the loan will refer as 3%.

The effective additional rate for 3 points:

`(3\%)/(8)`

`0.375\%`

Now add this to original interest rate which will gives us the effective yield to the lender.

8% + 0.375% = 8.375% ≈ 8.38%

Hence, the correct option is A) 8.38%