You have are in the 5th year of a $300,000 5/1, 30 year ARM with caps...

You have are in the 5th year of a $300,000 5/1, 30 year ARM with caps of 3/2/5 and an initial (composite) rate of 4.5% (Index of 2.5% + margin of 2%). Your current monthly payments of P+I equal $1,520.06. By the end of Year 5, interest rates have increased substantially and the "index" is now at 6.5%. What will your new monthly payment be for Year 6. [Hint: find the loan principal amount then recast for remaining 25 years at new rate].

Solutions

Expert Solution

Calculation of the loan principal amount at the end of 5 years -

Amortization table -

at the end of 5th year/60 months the principal value of loan = 273473.75

now interest rate has increase to 6.5% per year

revised rate of interest per month = 6.5%/12

= 0.54167%

New month installment from year 6 = outstanding loan amount at the beginning of year 6/PVIFA(0.54167%,300)

= 273473.75/148.1027

= 1846.514

Please check with your answer and let me know.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

You have taken out a $300,000, 5/1 ARM. The initial rate of 5.4% (annual) is locked...

You have taken out a $300,000, 5/1 ARM. The initial rate of 5.4% (annual) is locked in for five years. Calculate the payment after recasting the loan (i.e., after the reset) assuming the interest rate after the initial lock period is 8.0%. (Note: the term on this 5/1 ARM is 30 years.)

You have taken out a $300,000, 5/1 ARM. The initial rate of 5.4% (annual) is locked in for 5 years.

You have taken out a $300,000, 5/1 ARM. The initial rate of 5.4% (annual) is locked in for 5 years. Calculate the payment after recasting the loan (i.e., after the reset) assuming the interest rate after the initial lock period is 8.0%. (Note: the term on this 5/1 ARM is 30 years) A. $1,684.59 B. $1,784.79 C. $1,887.75 D. $2,138.02

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...

Assuming a 5/1 ARM, calculate the monthly mortgage payment on a 30 year $200,000 mortgage with...

Assuming a 5/1 ARM, calculate the monthly mortgage payment on a 30 year $200,000 mortgage with an initial rate of 2.75%, a rate of 4% at the time of the first adjustment, a rate of 5% at second adjustment and a rate of 4% at the third adjustment.

You would like to borrow $245,000 using a 30-year, 1-year ARM indexed to the 1- year...

You would like to borrow $245,000 using a 30-year, 1-year ARM indexed to the 1- year Treasury security with a 2.75 percent margin and 2/6 caps (2 percent per year and 6 percent lifetime). The initial interest rate on this loan is 2.75 percent. The lender is charging you 1.50 points and $1,200 in miscellaneous fees to close the loan. a) What is the initial payment on this mortgage? b) If the 1-year Treasury security is yielding 2.25 percent at...

1a.Which of the following is false? A. A 5/1 HYBRID ARM loan is a 5-year fixed...

1a.Which of the following is false? A. A 5/1 HYBRID ARM loan is a 5-year fixed rate after which the interest rate would become adjustable, tied to an index, and would be reset each year thereafter. B. The expected cost of borrowing depends on the frequency of payment adjustments. C. If an ARM index increased 15%, the negative amortization on a loan with a 5% annual payment cap is calculated by totaling the difference between the payment as if no...

You have taken out a $425,000, 3/1 ARM. The initial rate of 5% (annual) is locked...

You have taken out a $425,000, 3/1 ARM. The initial rate of 5% (annual) is locked in for three years and is expected to increase to 6.75% at the end of the lock period. Calculate the initial payment on the loan. (Note: the term on this 3/1 ARM is 30 years.)

You have taken out a $150,000, 5/1 ARM. The initial rate is 2%. The interest rate...

You have taken out a $150,000, 5/1 ARM. The initial rate is 2%. The interest rate after the initial lock period is 4%. The term on this 5/1 ARM is 30 years. What is the total amount of interest paid during the initial lock period?

Compute the realized average life of a 30 yr., 5/1 ARM with initial rate of 4%,...

Compute the realized average life of a 30 yr., 5/1 ARM with initial rate of 4%, and a margin of 2%. The underlying index is (date in yrs., index in %): (0,2), (1,3), (2,3), (3,2.5), (4,3), (5,5), (6,5), and (7-30,6). The loan is never prepaid, nor curtailed, nor defaults. There are no rate or payment caps. Annotate excel, or show all work.

Compute the realized average life of a 30 yr., 5/1 ARM with initial rate of 4%,...

Subjects