Question

A borrower buys a house for $125,000 by getting a loan for $100,000. When the loan had a balance of $60,000, he decided to refinance to lower the interest rate by 2%. To do this, he has to pay a prepayment penalty of 1.5% on the remaining principle balance. How much will that prepayment penalty cost him?

Answer 1

To find the cost of the prepayment penalty for refinancing a home loan with a remaining balance of $60,000 at a penalty rate of 1.5%, you multiply 1.5% by $60,000, resulting in a penalty of $900.

Step-by-step explanation:

The question you're asking involves calculating a prepayment penalty for refinancing a home loan. Given that the original loan was for $100,000 and the current balance is $60,000, and the prepayment penalty is 1.5% of the remaining principal balance, here's how you would calculate the cost of that penalty:

1. Determine the remaining balance of the loan, which in this case is $60,000.
2. Calculate 1.5% of that balance to find the prepayment penalty: 0.015 × $60,000 = $900.

The prepayment penalty will cost the borrower $900.