15 May WHAT ORIGINATION FEE SHOULD BE CHARGED IF IT IS EXPECTED THAT THE LOAN WILL BE REPAID AFTER 10 YEARS?
lender is considering what terms to allow on a loan. Current market ters are 8% interest for 25 years for a fullyamortizing loan. The borrower, Rich, has requested a long of $100,000. The lender believes that extra credit analysis and careful loan control will have to be exercised because Rich has never borrowed such a large sum before. In addition, the lender expects that market rates wil move upward very soon, perhaps even before the loan is closed. To be on the safe side the lenderdecides to extend to Rich a CPM loan commitment for $95,000 at 9% interest for 25 years; however, the lender wants to charge a loan origination fee to make the mortgage loan yield 10 percent. What origination fee shold the lender charge? What fee should be charged if it is expected that the loan will be repaid after 10 years.
a. What origination fee should be charged if it is expected that the loan will be repaid after 10 years?
Please show the steps you used to get to your solution even if you used a financial calculator.
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