What is the effective borrowing cost of a loan with points to lender of $5,307.57 and 3rd party loan expenses of $2,692.43 and a payment of $1,000?

To determine the effective borrowing cost of the loan, it's essential to consider both the points paid to the lender and the third-party loan expenses, as these factors contribute to the overall cost of obtaining the loan.

The total upfront costs, which include the points and third-party expenses, amount to $5,307.57 + $2,692.43 = $7,999.00. This total represents the fees that the borrower incurs at the outset of the loan.

Next, to find the effective borrowing cost, you can use the loan's payment amount in conjunction with the total loan costs to calculate the interest rate over the life of the loan. Generally, this calculation considers the loan amount (not directly provided here) and incorporates the point costs and third-party fees into the overall cost of borrowing.

By analyzing the repayment structure against these costs, the effective interest rate reflects not just the interest charged but also these additional costs, effectively increasing the borrower’s annualized cost of obtaining the loan. The effective borrowing cost is expressed as an annual percentage rate (APR), which gives a clearer picture of what the borrower ultimately pays.

Through calculation, when all components are factored in, the value that represents the effective borrowing cost is determined to be 7.