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John wants to purchase a rental property for $105,000 and obtain an 80% loan for $84,000. A lender indicates that a fully amortizing loan is available for 30 years (360 months) at 8% interest; however, an up front origination fee of $4,000 will also be necessary (basically points).
a. How much (net) will the lender actually disberse?
b. What is the effective interest rate for the borrower, assuming that the mortgage is paid off after 30 years (full term) and including the fee?
c. If John pays off the loan after five years, what is the effective interest rate?

d. Assume the lender also imposes a prepayment penalty of 2% on the outstanding loan balance if the loan is repaid within 8 years of closing. What is the effective interest yield to the lender if the loan is paid off in 5 years?

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