Loan closing costs

 

1.) What are loan closing costs? How can they be categorized?
2.) Why do lenders charge origination fees and loan discount fees?
3.) A borrower has a fully amortizing 10-year mortgage loan for $125K with an interest rate of 11% and fixed monthly payments. What are the monthly payments? If the loan has a maturity of 30 years, what would be the monthly payment? Show all math using XLS
4.) A borrower has a fully amortizing loan for $80k, 6% interest rate with a 25 year amortization schedule/term and monthly payments. Calculate (show all math using XLS).
o Monthly payments
o Interest and principal payments in month 1
o Total interest and principal over 25 years.

Sample Solution

Loan costing costs

Whether you are buying a new home or refinancing your mortgage, you need to be financially prepared to pay closing costs. These fees typically add up to somewhere between 2 percent and 5 percent of the amount you are borrowing. Closing costs are processing fees you pay to your lender. Lenders charges these fees in exchange for creating you loan. Closing costs cover things like your home appraisal and searches on your home`s title. Closing costs are bucketed into two main categories: property-related fees and mortgage-related fees. The closing costs associated with the property are the expenses that help verify the home`s ownership and value.

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