fyi Student Question... (see you Saturday Morning 10 AM)

Question: Well in the main problem its states that he borrows $300,000 at a annual interest rate of 10.25 for 15 years and then it says further that the loan required 2 discounts points at the time of origination and he kept the loan for the full term. so what would be the effective interest rate?I I've tired to work backwards with the answer that we I have provide but i still can't figure it out

Answer:
First step is to calculate the mortgage payment for a $300,000 mortgage, 10.25% per year rates, for 15-years with monthly payments.

n=180
i=10.25%/12 (I have my calculator set to 1 payment/year.)
PV=300,000
FV=0
PMT=?=-3269.85

Second step is to calculate the points.

2 points = 2% of the mortgage amount
300,000 x .02 = 6000

So, the borrower (mortgagor) actually receives $294,000 ($300,000 - $6,000)

Third step is to calculate the effective yield.

n=180 (the mortgage is held to term.)
PV=296,000
PMT=-3269.85
FV=0
i=.8740%/month x 12 months = 10.49%