In order to invest in a small inn in Val Mstair (CH, GR), an investor contracts a CHF 5.6M ARM with 30-year monthly payments and annual interest rate adjustments.

The teaser rate (1st year only) is 2%. Annual cap is 3%, and lifetime cap is 5.8%. The index for the loan is the LIBOR, and the loan has a margin of 180 basis points.

It is expected that the LIBOR will increase by 1.8% on the second year (at the end of Year-1), and by another 1.2% on the third year (at the end of Year-2).

Current Yield on Libor is 3.15%. The loan is prepaid in 3 years.

-Assume the initiatial costs of 1.5 point (for loan issuance), and there is a 2.5% prepayment penalty.

1)PV after borrowing cost adjustments

2)3rd year Balance after pre-payment penalty adjustment

3)EBC (assuming pre-payment after 3 years)

BEG INDEX MARGIN RATE CONTRACT RATE NPER PMT END ARM Annual Schedule Year 1 2 3 Assume the initiatial costs of 1.5 point (for loan issuance), and there is a 2.8% prepayment penalty. BEG INDEX MARGIN RATE CONTRACT RATE NPER PMT END ARM Annual Schedule Year 1 2 3 Assume the initiatial costs of 1.5 point (for loan issuance), and there is a 2.8% prepayment penalty