Question
In: Advanced Math
The table shows the specifications of an adjustable rate mortgage (ARM). Assume no caps apply. Find...
The table shows the specifications of an adjustable rate mortgage (ARM). Assume no caps apply. Find a) the initial monthly payment; b) the monthly payment for the second adjustment; and c) the change in monthly payment at the first adjustment. *The principal balance at the time of the first rate adjustment.
Beginning Balance $75000
Term 20 years
Initial index rate 5.4%
Margin 2.6 %
Adjustment period 1 year
Adjusted index rate 6.9%
*Adjusted balance $73,414.75
What is the initial monthly payment?
(Round to the nearest cent.)
What is the monthly payment for the second adjustment period?
(Round to the nearest cent.)
How much is the increase in monthly payments?
Solutions
Colby Messinger answered 1 year agoRelated Solutions
Assume that the lender offers a 30-year, $150,000 adjustable rate mortgage (ARM) with the following terms:...
Assume that the lender offers a 30-year, $150,000 adjustable
rate mortgage (ARM) with the following terms:
Initial Interest Rate = 7.5%
Index = one-year Treasuries
Payments reset each year
Margin = 2%
Interest rate cap = 1% annually; 3% lifetime
Discount points = 2%
Fully amortizing; however, negative amortization allowed if
interest rate caps reached.
Based on estimated forward rates, the index to which ARM is tied
forecasted as follows: Beginning of year BOY2 = 7%; BOY3 = 8.5%'
BOY4...
An Adjustable Rate Mortgage (ARM) is made for $300,000 at an initial interest rate of 2...
An Adjustable Rate Mortgage (ARM) is made for $300,000 at an
initial interest rate of 2 percent for
30 years. The ARM will be adjusted annually. The borrower
believes that the interest rate at the
beginning of the year (BOY) 2 will increase to three percent
(3%).
a. Assuming that the ARM is fully amortizing, what will monthly
payments be during year 1?
b. Based on (a) what will the loan balance be at the end of year
(EOY) 1?...
At the time of origination, the expected yield on an adjustable rate mortgage (ARM) should be...
At the time of origination, the expected yield on an
adjustable rate mortgage (ARM) should be less than that of a Fixed
Rate Mortgage. Discuss.
You are considering taking out an adjustable rate mortgage (ARM) to finance your new home and...
You are considering taking out an adjustable rate mortgage
(ARM) to finance your new home and have been given the following
information by the bank:
$250,000 house price
80% Loan to Value
200 bps margin
2.5% LIBOR – Index for Year 1
Teaser Rate in Year 1 – 2%
Periodic Cap – 1.5%
Life Cap – 5%
You also went on Bloomberg and found
the following LIBOR Index projections for the next few years:
3% - Index for Year 2...
Case: A borrower received a 30-year ARM mortgage loan for $200,000. Rate caps are 3/2/6. The...
Case: A borrower received a 30-year ARM mortgage loan for
$200,000. Rate caps are 3/2/6. The start rate is 3.50% and the loan
adjusts every 12 months for the life of the mortgage. The index
used for this mortgage is LIBOR (for this exercise, 3.00% at the
start of the loan, 4.45% at the end of the first year, and 4.50% at
the end of the second year). The margin on the loan is 3.00%, which
remains the same for...
George secured an adjustable-rate mortgage (ARM) loan to help finance the purchase of his home 5...
George secured an adjustable-rate mortgage (ARM) loan to help
finance the purchase of his home 5 years ago. The amount of the
loan was $250,000 for a term of 30 years, with interest at the rate
of 9%/year compounded monthly. Currently, the interest rate for his
ARM is 5.5%/year compounded monthly, and George's monthly payments
are due to be reset. What will be the new monthly payment? (Round
your answer to the nearest cent.)
You are looking to finance your home. The bank is offering a three-year ARM (adjustable-rate mortgage)...
You are looking to finance your home. The bank is offering a
three-year ARM (adjustable-rate mortgage) with an introductory rate
of 3.40%. It has an adjustment cap of 3.00% per adjustment period
with a lifetime adjustment of 8.00%. The rate is 4.00% over the
one-year LIBOR rate which is currently 1.25%.
What will your interest rate be after three years if the LIBOR
rate does not change? (Round your answer to 2 decimal
places.)
In three years, what is the...
2. Summarize the four types of caps that affect adjustable-rate mortgages
2. Summarize the four types of caps that affect adjustable-rate
mortgages
Discuss the advantages and disadvantages of an adjustable-rate mortgage versus a fixed-rate mortgage.
Discuss the advantages and disadvantages of an adjustable-rate
mortgage versus a fixed-rate mortgage.
Consdier an adjustable rate mortagage (ARM) loan for 650,000. The interest rate is indexed to the...
Consdier an adjustable rate mortagage (ARM) loan for 650,000.
The interest rate is indexed to the 10-year Treasury yield. The
loan has a margin 2.75%, first-year teaser rate of 2.75%, an annual
rate cap of 2% and a lifetime rate cap of 5%. The loan requires
monthly payments for 25 years. Assume that 10-year Treasury yields
are as shown blow.
10-yr treasury yield at first anniversary date (end of year 1)
3.5%
10-yr treasury yield at the end of second...
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