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A borrower takes out a 5/1 Hybrid ARM for $200,000 with an initial contract interest rate...

A borrower takes out a 5/1 Hybrid ARM for $200,000 with an initial contract interest rate of 3.5%. The interest rate will adjust according to the 1 yr LIBOR rate, plus a margin of 2%. At the first reset date, 1 yr LIBOR is at 1%. What will the borrowers’ monthly payment be immediately after the first reset? (State the payment as a positive number. Unless otherwise stated, you can assume 5/1 ARMs have a term of 30 years. Round your answer to 2 decimal places.)

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Expert Solution

For a 5/1 ARM, first interest reset is after 5 years,

Since tenure is given as 30 years, remaining term after first reset is 25 years.

Also given, LIBOR at the time of first reset is 1% and margin is 2%. Therefore, interest rate after first reset is 1%+2%= 3%.

Monthly payment after first reset= $850.71 as follows:

jeff jeffy answered 1 year ago
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