Actually, I know prepaid interest goes into the APR calculation based on Reg
Z requirements, I just didn't know what part of the equation the prepaid
interest went into. Prepaid interest is also considered a cost of the loan,
just like interest during the term of the loan. My question was whether or
not the prepaid interest was lumped with the other interest payments since it
is also interest, or whether it was lumped with the other prepaid costs like
origination and wire fees. Time value of money considerations suggest it's
lumped in with the prepaid costs.

"Fred Smith" wrote:

The answer to the first question is easy. The APR on an interest only loan is
the interest rate. As the principal never reduces with an interest only loan,
there's no amortization you need to do.

For the second question, I would not consider prepaid interest as part of the
fee. It's a timing question. It allows you to make payments at the end of the
month, rather on, for example, the 27th as in the second loan.

--
Regards,
Fred
Please reply to newsgroup, not e-mail


"MK Manzer" wrote in message
...
Two interest only loans, how the heck do I calculate APR?

First -- $500,000 loan for 2 years (24 months) at 9.5% (3,958.33/mo). Fees
of $11,090.56 are deducted from loan amount for a net funding of 488,909.44
and include a 2 point origination fee ($10,000); prepaid interest from
6/23-6/30 of $1,055.56; and a $35 wire fee. Is prepaid interest is
considered a fee for this calculation???

Second - $1,250,000 loan for 3 years (36 months). First 2 years at 9.5%
(9,895.83/mo); 3rd year at 10.5% (10,937.50/mo). Fees of $54,479.44 are
deducted from loan amount for a net funding of $1,195,520.56 and include a
4.25% origination fee (53,125); prepaid interest from 6/27-6/30 ($1,319.44);
and a $35 wire fee. Again, is prepaid interest considered a fee for this
calculation?