Question
An ARM is made for $150,000 for 30 years with the following terms: Initial interest rate = 7% Index = 1-year Treasuries Payments reset each
An ARM is made for $150,000 for 30 years with the following terms:
Initial interest rate = 7%
Index = 1-year Treasuries
Payments reset each year Margin = 2%
Interest rate cap = None
Payment Cap = 5% increase in any year
Discount points = 2%
Fully amortizing; however, negative amortization allowed if payment cap reached based on estimated forward rates, the index to which the ARM is tied is forecasted as follows:
Beginning of year (BOY) 2 = 7%; (BOY)3 = 8.5%; (BOY)4 = 9.5%; (BOY)5 = 11% Compute the payments, loan balances, and yield for the ARM for the five-year period.
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