Question

In: Finance

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.

Solutions

Expert Solution

Fixed-rate mortgages and adjustable-rate mortgages are the two types of primary mortgage. So it is very important to select which mortgage we should select and which is appropriate for us. In fixed rate mortgages the interest rate is already set and will not change time to time. The initial interest rate at the time of origination on an adjustable-rate mortgage is set below the market rate on a comparable fixed-rate loan. After that only gradually the rate will began to rise. These type of mortgages are little but complicated than the fixed rate mortgage. Here we can identify that the rate of ARM is less than the fixed rate mortgage because in fixed rate mortgage the rate is not fluctuating so that the rate will be higher from the initial period. But in ARM the rate will be low in initial period and after that the rate will gradually increase. This is how these two mortgages are working.

ThankYou....

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

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?...
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​...
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...
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...
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...
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 3.60%. It has a 3.00% adjustment cap per adjustment period, a lifetime adjustment of 7.00%. The rate is 4.00% over the one-year LIBOR rate, which is currently 1.35%. a. What will your interest rate be after three years if the LIBOR rate does not change? (Round your answer to 2 decimal places.) Interest rate % b. In three years,...
Excel work, please Assume that a lender offers a 30-year, $150,000 adjustable rate mortgage (ARM) with...
Excel work, please Assume that a lender offers a 30-year, $150,000 adjustable rate mortgage (ARM) with the following terms: Initial interest rate = 7.5 percent Index = one-year Treasuries Payments reset each year Margin = 2 percent Interest rate cap = 1 percent annually; 3 percent lifetime Discount points = 2 percent Fully amortizing; however, negative amortization allowed if interest rate caps reached Based on estimated forward rates, the index to which the ARM is tied is forecasted as follows:...
Facts · Mortgage Principal at origination 1/1/2020: $10,000,000 · Annual Interest Rate at origination: 6% ·...
Facts · Mortgage Principal at origination 1/1/2020: $10,000,000 · Annual Interest Rate at origination: 6% · Term of Mortgage from origination 1/1/2020: 20 years · Purchase Price: $10,000,000 on 1/1/2020 · The mall owner has stopped paying principal beginning April, 2021, and anticipates being unable to pay even the interest portion beginning September, 2021 unless the CDC allows less strict mask and social distancing requirements. · The mall had a fair market value of $20 million on 1/1/2020, and expects...
Facts ·       Mortgage Principal at origination 1/1/2020: $10,000,000 ·       Annual Interest Rate at origination: 6% ·      ...
Facts ·       Mortgage Principal at origination 1/1/2020: $10,000,000 ·       Annual Interest Rate at origination: 6% ·       Term of Mortgage from origination 1/1/2020: 20 years ·       Purchase Price: $10,000,000 on 1/1/2020 ·       The mall owner has stopped paying principal beginning April, 2021, and anticipates being unable to pay even the interest portion beginning September, 2021 unless the CDC allows less strict mask and social distancing requirements. ·       The mall had a fair market value of $20 million on 1/1/2020, and expects...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT