Answer:
Explanation:
Mortgage rates are influenced by many different factors including demand from homebuyers and homeowners for new loans, current economic conditions, inflation, and demand from investors to buy mortgage loan debt
Mortgage interest rates have a very significant impact on the overall long-term cost of purchasing a home through financing. On the one hand, mortgage borrowers are seeking the lowest possible rates; on the other, mortgage lenders must manage their risk through the interest rates they charge. The lowest mortgage interest rates are only available to borrowers with the most solid finances and stellar credit histories.
While the financial health of borrowers affects how good an interest rate they can get, larger economic factors and government financial policy affect the whole mortgage rate universe. You can boil it down to these five important factors. All represent basic rules of supply and demand in one form or another. It's a little technical, but learning these principles will give you a good way to think about what you're paying now and what could be coming
Answer a.
Effective Annual Rate of a loan is 8.92%
Answer b.
Effective Annual rate R is 12.27%
Answer is not affected by Loan amount as certain percentage of loan that is deducted as points.
Explanation:
Answer a
Points deducted = 2 or 2%
April = 8.4%
Monthly rate (i)= 8.4%/12= 0.007
Months in a year = 12
Effective Annual Rate of a loan =( (1+(i/(1-points)))^months in year)-1
((1+(0.007/(1-2%)))^12)-1
=0.08916311096 or 8.92%
So Effective Annual Rate of loan is 8.92%
Answer b
quoted interest rate = 11.4%
Monthly rate (i)= 11.4%/12=0.0095
Months in year = 12
points deducted= 2 or 2%
EAR of loan =((1+(i/(1-points))) ^months in year)-1
((1+(0.0095/ (1-2%))) ^12)-1
=0.1227334817 or 12.27%
Answer is not affected by Loan amount as certain % of loan is deducted as points.
