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Nicky831224 · Jan 20, 2007, 11:09 AM

Here is queation: There are two banks in the area that offer 30-year, $210,000 mortgages at 7.5 percent and charge a $1,500 loan application fee. However, the application fee charged by Insecurity Bank and Trust is refundable if the loan application is denied, whereas that charged by I. M. Greedy and Sons Mortgage Bank is not. The current disclosure law requires that any fees that will be refunded if the applicant is rejected be included in calculating the APR, but this is not required with nonrefundable fees (presumably because refundable fees are part of the loan rather than a fee).

What is the EAR and APR for the loan with the refundable fee?

APR?

EAR?

Requirement 2:

What is the EAR and APR for the loan with the nonrefundable fee?

APR?

EAR?
Could somebody help me, Thank you.

KMSRyana · Jan 20, 2007, 02:45 PM

Assuming that there are no other loan fees within the loan that you are financing, in your first scenario you gave the APR and the EAR would be the same, 7.5%

In the second scenario your APR would be 7.573% and the EAR would be 7.5%.

You must consider if you are financing any other fees (such as the escrow, title insurance, lender fees, etc.) as well. If you are, versus paying them outside the loan, it would change the answer to your question.

Nicky831224 · Jan 20, 2007, 05:12 PM

How do u get the answer?Thank you

Fr_Chuck · Jan 20, 2007, 05:15 PM

This appears to be a school work of some sort, From the names of the mortgage companies to the example, since a 1500 non refundable fee would not be used in real life in today's mortgage industry.

We are not here to do this homework, we may suggest how you can do it, and best of all you supply us with your opinion of what you think the answer is and we can help you look at it.

Please do not submit future homework questions here for us to do it, please submit general questions or your answers for us to review.

schoolstuffer · Mar 5, 2007, 07:33 PM

If given APR then you have to convert to EAR=(1+(Nominal rate/M)^m)-1

So if given the APR .02 and m=# of periods is 12 then the equation would be
[1+(.02/12)^12] -1 = 2.0184% EAR

cbmitchell · Jul 24, 2012, 04:40 PM

I am using excel to find the EAR for mortgages. I am doing a 30 year and the interest rate is 3.75. I am getting confused with formular. I put in =(30+3.75/30)-1
or is it =(1+3.75/1)-1. I read that 1 is annually 2 semi and so forth. Please help me
I need for my school assignment. Professor is not making it clear to me

cbmitchell · Jul 24, 2012, 04:45 PM

Originally Posted by cbmitchell

I am using excel to find the EAR for mortgages. I am doing a 30 year and the interest rate is 3.75. I am getting confused with formular. I put in =(30+3.75/30)-1
or is it =(1+3.75/1)-1. I read that 1 is annually 2 semi and so forth. please help me
i need for my school assignment. professor is not making it clear to me

To be sure I understand you the answer is EAR is 3.75

cbmitchell · Jul 24, 2012, 05:24 PM

Originally Posted by Fr_Chuck

This appears to be a school work of some sort, From the names of the mortgage companies to the example, since a 1500 non refundable fee would not be used in real life in today's mortgage industry.

We are not here to do this homework, we may suggest how you can do it, and best of all you supply us with your opinion of what you think the answer is and we can help you look at it.

Please do not submit future homework questions here for us to do it, please submit general questions or your answers for us to review.

not looking for you to do my homework. I was trying to understand the formular so I could it myself. I gave you two formular was trying make sure I am on the right track with =(1+3.750/1)-1

thank you