Case 1: Consider a one-year, $150,000 ARM with a 30-year amortization period. The index rate...
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Case 1:
Consider a one-year, $150,000 ARM with a 30-year amortization period. The index rate is currently 3.75 percent and you estimate that it will increase by 25bp (0.25%) each year for the following 2 years. The fixed margin is 225bp (2.25%), but the lender is offering a teaser rate of 5 percent for the first year of the mortgage.
Calculate the contract rate, remaining loan balance, and monthly payment for each of the three years.
Suppose that the ARM has a 1 percent annual adjustment cap and a 6 percent overall cap. What is the loan balance and monthly payment for each of the three years?
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