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Emmett goes to the bank and sees that the ARM rates are lower than the fixed rates (which is usually true). He sees that he

Emmett goes to the bank and sees that the ARM rates are lower than the fixed rates (which is usually true). He sees that he can get an initial rate of 6.1% on a 4/1 ARM for a 30-year term with a 2% annual cap. He wants to buy a fancy new house listed for $697,500 with an LTV of 80%. After the fixed period of the ARM, the rate will change to 7.76%. a. What is Emmett's payment with the teaser rate? b. What is the OLB at the completion of the fixed period? c. What will be his new monthly payment with the new rate? d. At the end of the fixed period, Emmett's house is appraised for $750,000. What is his "paper gain" in the property (his equity)? e. Now suppose that after the fixed period, the index interest rate is 5.75% with a margin of 2.5%. What is the monthly payment after the rates update?

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