Loan Assignment | Professional Writing
2. Irene and Frank Adam plan to purchase an 80 acre tract of land valued at $2,200 per acre. The lender charges a $500 loan application fee and $250 for a real estate appraisal. A stock requirement of 5% of the loan amount (after addition of fees) is required. The fees and stock requirement can be added to the original loan amount. The original stock value will be returned upon retiring the loan. The contractual rate is 8%. The fixed annual payments are based on a 20 year amortization period. The interest is calculated using the remaining balance method.
a. What is the effective annual interest rate for the loan?
b. What is the effective annual interest rate for the loan if there is no stock requirement? c. What is the effective annual interest rate if the amortization period is lengthened to 30 years using the conditions of question a? Explain the difference from the answer in a.
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