Ask Experts Questions for FREE Help !
Ask
    tomko's Avatar
    tomko Posts: 1, Reputation: 1
    New Member
    		  
    #1

    Mar 7, 2007, 09:57 PM
    Effective interest rate
    Hello,

    I have a mortgage of $500,000 with a monthly payment of $2908.02 at interest rate of 5%, amortized over life of mortgage which is 25 years. The effective monthly rate is then 0.4124%. We also incur $50,000 in transaction costs that is paid as a lump sum when the mortgage originates. On the balance sheet, we amortize the cost of those transaction costs over the mortgage term which is 5 years so it is classified as a deferred expense. The mortgage payable is shown as a liabilities.

    The problem is that due to FASB rules, we have to net the two numbers and derive a new effective rate. The way I have done this is $500,000 - $50,000 = $450,000. I use the same monthly payment of $2908.02 over 25 years and derive a monthly effective rate of 0.50262% to bring down the balance on the 25th month.

    The question I have is whether my calculation is correct because the $50,000 is amortized over 5 years not 25. I am not sure if it matters to the calculation of the new effective rate.

    Thanks
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert
    		  
    #2

    Mar 9, 2007, 10:28 AM
    Sorry, cannot help you without doing research for which I have no time.
Not your question? Ask your question View similar questions
 

Question Tools Search this Question
Search this Question:

Advanced Search

Add your answer here.


Check out some similar questions!

Interest Rate Risk [ 2 Answers ]

Consider three bonds with 8% coupon rates, all selling at face value. The short-term bond has a maturity of 4 years, the intermediate-term bond has maturity 8 years, and the long-term bond has maturity 30 years. Which web site will be helpful for me to understand more about bonds.

8.5% Interest Rate on a Student Loan [ 2 Answers ]

I have approx. 10 K in student loans at 8.5% interest and 20K at 2.7%. Does it make sense to consolidate these loans or is it better to try and pay down the 10K loan at 8.5%? Will I be able to get a better interest rate than 8.5%. This is a private loan.

Interest rate and fees [ 4 Answers ]

This is also true for most loans. They send you refinance package with a certain interest rate. No closing fees. But they may have lenders fees Or another such name. Monthly payments are listed. But when the time comes. The story changes. They couldn't get that interest rate they promise you....

Please help with Interest Rate Question [ 1 Answers ]

If a situation involves a 10% interest rate compounded semiannually for 10 years, what interest rate and number of periods would be used to compute the present value? Thanks

View more questions Search