Question

You borrowed $650,000 to purchase a house. You fixed the loan's interest rate for 12 months at a time. Your loan had an initial term of 30 years with monthly payments. You repaid your loan early, at the end of 4 years. The fixed interest rates were as follows: Year 1: 6.15%; Year 2: 6.25%; Year 3: 5.35\%; Year 4: 4.95%. Calculate the effective interest rate (borrowing cost) on this loan. Enter your answer without the percentage [\%] sign, rounded to 4 decimal places (e.g. 10.4567).

Answer 1

An accurate calculation of the effective interest rate on a loan with varied yearly rates requires the payment schedule and remaining balances for each year, which are not provided.

Step-by-step explanation:

The question asks to calculate the effective interest rate (borrowing cost) on a $650,000 loan used to purchase a house, where the loan was repaid early at the end of 4 years with varied fixed interest rates for each year.

To calculate the effective interest rate for the whole period, we'd generally need to account for each year's interest rate and compound them appropriately, considering the amount of the loan that remains and the additional payments made over the period. However, without the exact schedule of payments and remaining balances at the end of each year, along with any fees that might be applicable, we cannot provide an accurate calculation of the effective interest rate.