In: Finance
2.Assume the following for a one-year rate adjustable rate mortgage loan that is tied to the one-year Treasury rate: Loan amount: $200,000 Annual rate cap: 1% Life-of-loan cap: 4% Margin : 2.50% First-year teaser rate: 5.50% One-year Treasury rate at end of year 1: 5.25% One-year Treasury rate at end of year 2: 5.50% Loan term in years: 15 Given these assumptions, calculate the following: a.Initial monthly payment b.Loan balance end of year 1 c.Year 2 contract rate d.Year 2 monthly payment e.Loan balance end of year 2 f.Year 3 contract rate g.Year 3 payment
a. Loan amount = $200,000
Annual rate = 5.50 %
Tenure = 15 years
EMI = Loan amount * (annual rate/12) * [((1 + annula rate/12) ^ number of payment)/(((1 + annula rate/12) ^ number of payment-1)
= $200,000 * 0.055/12 * [(1 + 0.055/12) ^ 180]/[(1+0.055/12)^18 -1] = $1,634
b. Remaining Balance = [Loan amount * (1+ annual rate/12)^number of payment done] - Monthly payment * [ ((1+ annual rate/12)^number of payment done - 1)/(annual rate/12)]
= [$200,000 * (1+0.055/12)^12] - $1,643 * [ ((1 + 0.055/12)^12 - 1)/(0.055/12)] = $191,101
c. year 2 contract rate = max( (Treasure rate at end of year 1 + margin), ( first year teaser rate + annual rate cap))
= max ( (5.25 + 2.50), (5.50 + 1)) = 6.50
d. Loan amount = $191,101
annual rate = 6.50%
tenure = 14 years
EMI = Loan amount * (annual rate/12) * [((1 + annula rate/12) ^ number of payment)/(((1 + annula rate/12) ^ number of payment-1)
= $191,101 (0.065/12) * [((1 + 0.065/12) ^ 168)/((1 + 0.065/12) ^168 -1)] = $1,735
e.
Remaining Balance = [Loan amount * (1+ annual rate/12)^number of payment done] - Monthly payment * [ ((1+ annual rate/12)^number of payment done - 1)/(annual rate/12)]
= [$191,101 * (1+0.065/12)^12] - $1,735 * [ ((1 + 0.065/12)^12 - 1)/(0.065/12)] = $182,409
f. year 3 contract rate = max( (Treasure rate at end of year 2 + margin), ( secont year rate + annual rate cap))
= max ( (5.50 + 2.50), (6.50 + 1)) = 7.50
g.
Loan amount = $182,409
Annual rate = 7.50%
Tenure = 13 years
EMI = Loan amount * (annual rate/12) * [((1 + annula rate/12) ^ number of payment)/(((1 + annula rate/12) ^ number of payment-1)
= $182,409 (0.075/12) * [((1 + 0.075/12) ^ 156)/((1 + 0.075/12) ^156 -1)] = $1,834