Which of the following is the most accurate representation of the effective interest rate over 5 years for a $190,000 loan?

The effective interest rate is a critical measure as it takes into account not just the nominal interest rate but also the compounding frequency and associated costs over the life of a loan. When analyzing a loan of $190,000 over a period of five years, calculating the effective interest rate would typically involve the assessment of all fees, points, and other expenses in relation to the loan amount.

The answer indicating an effective interest rate of 6.14% suggests that this rate has been computed considering both the interest payments and any additional costs. It reflects the true cost of borrowing for the borrower over the full term, allowing for a better understanding of what the borrower will actually pay compared to a simple nominal rate.

In the context of the other potential answers, the rates listed as alternatives—5.5%, 7.25%, and 4.95%—may not accurately reflect the true effective cost when all fees and compounding effects are included over the five-year period. Choosing the most accurate rate is crucial for borrowers to make informed decisions about which loan products to pursue and helps in comparing different offers.