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 = 9.5%, BOY5 = 11%.

Compute the payments, loan balances, and yields for the ARM for the five-year period.

****Please in Excel as I need to learn how to use the formulas and learn which ones to use*** Thank you!

Solutions

Expert Solution

Solution:

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

An ARM is made for $150,000 for 30 years with the following terms: Initial interest rate...

An ARM is made for $150,000 for 30 years with the following terms: Initial interest rate = 3% Index = 1-year Treasuries Payments reset each year Margin = 2 percent Fully amortizing Interest rate cap = 1 percent annually; 3 percent lifetime Estimated forward rates: BOY 2 4.00% BOY 3 5.25% BOY 4 6% BOY 5 6.50% Compute payments and balances for each of the years 1-5.

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...

which mortgage is riskier for lender? fixed rate mortgage to adjustable rate mortgage? And why does...

which mortgage is riskier for lender? fixed rate mortgage to adjustable rate mortgage? And why does the adjustable rate mortgage have lower expected yield?

Your local lender offers you a fixed-rate mortgage with the following terms: $220,000 at 5.50% for...

Your local lender offers you a fixed-rate mortgage with the following terms: $220,000 at 5.50% for 30 years, monthly payments. The lender will charge you two discount points and the loan has a 4% prepayment penalty. A. (1 pt) What is the annual percentage rate (APR) of the loan? B. (1 pt) How many points are required to yield an APR of 5.75%?

Your local lender offers you a fixed-rate mortgage with the following terms: $220,000 at 4.75% for...

Your local lender offers you a fixed-rate mortgage with the following terms: $220,000 at 4.75% for 30 years, monthly payments. The lender will charge you two discount points and the loan has a 3% prepayment penalty. A. (1 pt) What is the annual percentage rate (APR) of the loan? Answer: _______ B. (1 pt) How many points are required to yield an APR of 5.25%? Answer: _______

Your lender now offers you a 30-year fixed-rate mortgage with 3.6% interest rate per year. If...

Your lender now offers you a 30-year fixed-rate mortgage with 3.6% interest rate per year. If you can afford a monthly payment of $1725, what is the maximum loan you can get? (round to nearest dollar.)

Your lender now offers you a 30-year fixed-rate home mortgage with 3.6% interest rate per year....

Your lender now offers you a 30-year fixed-rate home mortgage with 3.6% interest rate per year. If you can afford a monthly payment of $2279 , what is the maximum loan you can get? (Round to the nearest dollar.)

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.

6. Your lender now offers you a 30-year-fixed rate home mortgage with 3.6% interest rate per...

6. Your lender now offers you a 30-year-fixed rate home mortgage with 3.6% interest rate per year. If you can afford a monthly payment of $1510, what is the maximum loan you can get? 7. What is the present value of $3190 paid at the end of each of the next 50 years if the interest rate is 7% per year?

Subjects