1) Sylvia's closing costs are $1870
2) If the APR is (interest for one year plus closing costs) ÷ (amount financed), then the APR for that year = 10.67%
3) If the APR is (interest only for one year) ÷ (amount financed), the APR for that year = 8.47%
What is closing costs?
"These are processing fees you pay to your lender. Lenders charge these fees in exchange for creating your loan."
Formula to calculate the closing cost:
Closing costs can make up about m% of the loan amount. This means that if you take out a mortgage worth $x, then the closing costs is about m% of x dollars.
What is APR?
"An annual percentage rate (APR) is a measure of the cost of borrowing money than the interest rate."
For given example,
Sylvia Smith takes out a $85,000 mortgage. She paid 2.2% of the loan amount in closing costs and $7,200.35 in total interest the first year of the loan.
1) The closing costs would be,
= 2.2 % of $85,000
= (2.2/100) × 85000
= 0.022 × 85000
= $1870
Therefore, Sylvia's closing costs are $1870
2) if APR is (interest for one year plus closing costs) ÷ (amount financed)
So, the APR would be,
⇒ APR = (interest for one year plus closing costs) ÷ (amount financed)
⇒ APR = (7200.35 + 1870) ÷ 85000
⇒ APR = 9070.35 ÷ 85000
⇒ APR = 0.1067
⇒ APR = 10.67%
Therefore, if the APR is (interest for one year plus closing costs) ÷ (amount financed), then the APR for that year = 10.67%
3) if the APR is (interest only for one year) ÷ (amount financed)
So, the APR would be,
⇒ APR = (interest only for one year) ÷ (amount financed)
⇒ APR = (7200.35) ÷ 85000
⇒ APR = 0.0847
⇒ APR = 8.47%
Therefore, if the APR is (interest only for one year) ÷ (amount financed), the APR for that year = 8.47%
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