Question
A lender offers a 30-year, $600,000 1/1 ARM (adjustable rate mortgage). The initial rate (teaser rate) is 4% and is only valid for year 1,
A lender offers a 30-year, $600,000 1/1 ARM (adjustable rate mortgage). The initial rate (teaser rate) is 4% and is only valid for year 1, The margin is 200 bps (2%). The interest rate cap is 1% annually and the lifetime cap is 5%. The market index rate is based on 1-year treasury yield. The market index rate for years 2-5 are below.
Year 2 Year 3 Year 4 Year 5
Index 5.00% 6.50% 7.00% 9.50%
a) Please determine the annual interest rate for years 2, 3, 4, 5 respectively (0.25 point for each, 1 point in total) | ||||||||
b) Please generate the amortization table for years 1-5 for this loan (including beginning balance, monthly payment, interest payment, principal payment, ending balance) (2 points) | ||||||||
Your answer |
| |||||||
| ||||||||
a) |
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| |
Index |
|
| ||||||
Margin |
|
| ||||||
Composite rate |
|
| ||||||
Teaser rate |
|
| ||||||
|
|
| ||||||
Interest rate w/ caps |
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started