Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. you want to borrow $200,000 for 20 years for the p

You want to borrow $200,000 for 20 years for the purchase of your new home....

50.1K

Verified Solution

Question

Finance

You want to borrow $200,000 for 20 years for the purchase of your new home. You have been offered the following adjustable rate mortgage: Initial contract rate=4%, Index=1-year Treasuries, Payments adjusted each year, Margin=2%, Periodic interest rate cap=2%, Lifetime cap=6%, Payment cap=none, Negative amortization not allowed. Discount points =3.

The index to which the ARM is tied is forecast to be 6% at the end of year 1. You anticipate owning the house for two years.

a. Compute your monthly payments, interest and principal amortization payments, and end-of-year loan balances for the two-year period. Show your work and summarize your results by using a table that is similar to the following one.

image

b. If the ARM loan above is prepaid after 2 years, what would be the lenders yield (=borrowers cost of borrowing)? Show your work.

YearContractBeginningMonthlyInterestPrincipalamortizationEndingbalanceint.ratebalancepaymentforyearforyear

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

Name and discuss two main goals of finance. Are these goals mutually exclusive? Explain your answer.

Finance
Q

Which of the following statements is NOT correct about SI units O The SI unit...

Biology
Q

A sound wave passing through the air at NTP produces a pressure of 0 001...

Physics
Q

Angle B is an acute angle in a right triangle What is a reasonable approximation...

Geometry
Q

Simplify the expression by first factoring each numerator and denominator x 1 x 2x 3...

Basic Math
Q

Give the rank and nullity of the matrix below A rank A nullity A 2...

Basic Math
Q

described below A woman experienced a tax audit The tax department claimed that the woman...

Statistics
Q

just question 2 please a. Paid $66,000 cash to replace a motor on...

Accounting
Q

The Town of Weston has a Water Utility Fund with the following trial balance as...

Accounting
Q

An engineering firm spent $80,000 to purchase and install new computer equipment in its office....

Accounting
Q

Are any of these considered to be cash inflows/outflows? 1) Depreciation and amortization 2) Asset...

Accounting
Q

Gelbart Company manufactures gas grills. Fixed costs amount to $24,156,000 per year. Variable costs per...

Accounting