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Case Study #3

Data

Your spouse reminds you that you will likely only be in the home for six years, although the job looks wonderful. You compromise, and estimate that you will be in the home for twelve years. Review your choice between the two $200,000 loans, both which are amortized over thirty years, but which will be paid back in twelve years. Loan A is for the same 6.0 percent with no points or fees, and loan B is for 5.75 percent with a $1,500 loan fee and one point.

Calculations

Calculate the EIR for both loans, assuming prepayment after 12 years and annual payments.

Application

Which loan is more advantageous with prepayment using the EIR?

 



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