Given the following information, calculate the effective borrowing cost (rounded to the nearest tenth of a percent). Loan amount: $166,950, Term: 30 years, Interest rate: 8 %, Monthly Payment: $1,225.00, Discount points: 2, Other Closing Expenses: $3,611.
A) 7.7%
B) 8.2%
C) 8.5%
D) 9.1%

Question

Quizplus · Accepted Answer

The effective borrowing cost accounts for the interest rate, discount points, and other closing expenses. The discount points and closing expenses increase the initial cost of the loan, effectively raising the interest rate. Calculating the effective interest rate with these factors results in approximately 8.5%.

Given the Following Information, Calculate the Effective Borrowing Cost (Rounded