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In: Finance

1. Tim wants to buy an apartment that costs $750,000 with an 85% LTV mortgage. Tim...

1. Tim wants to buy an apartment that costs $750,000 with an 85% LTV mortgage. Tim got a 30 year, 3/1 ARM with an initial teaser rate of 3.75%. The reset margin on the loan is 300 basis points above 1 year CMT. Tim anticipates the index to be 3.50% at the time of the 1st reset. What is Tim’s monthly mortgage payment going to be during the 1st 3 years?

2. In Q1, if the index resets to 3.50% as Tim forecasts, what will his new mortgage payment be in year 4?

Solutions

Expert Solution

Given, cost= $750,000 and LTV= 85%

Therefore, loan amount =750,000*85%= $637,500

Index on first reset= 3.5% and margin= 3%

Therefore, interest rate applicable for 4th year= 6.5%

(a ): Monthly payments for first 3 years= $2,952.36

(b ): Monthly payments for 4th year= $3,939.72

Calculation as below:

jeff jeffy answered 2 years ago
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