it is zero, replace it with a $5,$ for example: $089$ would become $589$x$1000=589,000=$ price of house.$)$Take the last three digits of Social Security Number $\_\_\_\_\_\_\_\_$X $1000=$ Price of house. $($If first dig

A borrower wants to evaluate the loans listed below and anticipates owning the new home for $8$ years. Calculate the payments, loan balance at the end of year $8$ and yield for each mortgage for the $8$ year period using spread sheets.

$3-$Based on estimated forward rates, the index to which the ARM is tied is forecast as follows:

EOY six months: $5\mathrm{.}5\%$ EOY $1$: $4\mathrm{.}10\%$

EOY $18$months: $5\mathrm{.}75\%$ EOY $2$: $6\mathrm{.}15\%$

EOY $30$months: $8\mathrm{.}5\%$ EOY $3$: $9\mathrm{.}25\%$

EOY $42$months: $9\mathrm{.}5\%$ EOY $4$: $10\mathrm{.}2\%$

EOY $54$months: $11\%$ EOY $5$: $13\mathrm{.}0\%$

EOY $66$months: $10\mathrm{.}0\%$ EOY $6$: $8\mathrm{.}0\%$

EOY $78$months: $7\mathrm{.}5\%$ EOY$7$: $6\mathrm{.}0\%$

$4-$ The five different mortgages are listed below:

Mortgage A: FRM @$6\mathrm{.}30\%$ for $30$ years with $20\%$ down payment, $1\mathrm{.}25$ point.

Mortgage B: ARM @ $5\mathrm{.}5\%$ for $30$ years with $20\%$ down payment, $1\mathrm{.}5$ point, adjustable annually based on the index of one$-$year Treasuries given plus a margin of $1\mathrm{.}50\%.$ This loan has an annual interest rate cap of $1\%$ and $4\%$ interest cap over the life of the loan and no negative amortization.

Mortgage C: ARM @ $4\mathrm{.}0\%$ for $30$ year with $20\%$ down payment, $\mathrm{.}75$ point, adjustable annually based on the index of one$-$year Treasuries given plus a margin of $1\mathrm{.}25\%.$ This loan has a payment cap of $8\%$ and allows negative amortization.

Mortgage D: ARM @ $3\mathrm{.}25\%$ for $30$ years with $20\%$ down payment, $0\mathrm{.}5$ points, adjustable annually based on the index of one$-$year Treasuries plus a margin of $1\mathrm{.}0\%.$ This loan has no caps.

$5-$ From your answers above which loan would you choose and WHY?

Explain why the initial rate for each of the mortgages is different. Make sure to discuss the risk.