[Note: The information presented here applies to questions 3, 4, 5, and 6.] The fully-indexed rate on a 5/1 ARM with a maturity of 30 years is determined by the yield on the one-year LIBOR plus a margin of 250 basis points. If the fully-indexed (composite) rate is currently 6%, what is the current yield on the one-year LIBOR (in percent)?

QUESTION 4

If the initial rate on this loan is 4.5% and the amount borrowed is $375,000, what will the scheduled payments be for the first five years of the mortgage?

QUESTION 5

If there are no caps or other limitations on loan payments in this mortgage, what are the scheduled payments in the sixth year of the loan if the yield on the one-year LIBOR is 5% at the first reset date?

QUESTION 6

If there is a 1% annual interest rate adjustment cap over the initial composite rate in this mortgage, what are the scheduled payments in the sixth year of the loan if the yield on the one-year LIBOR is 5% at the first reset date?

QUESTION 7

You have borrowed 100,000 using an option ARM offering an initial rate of 6%. For your first payment, you decided to make the minimum payment of $400. What is the balance remaining on your loan after making this payment?

QUESTION 8

You have just borrowed $235,000 using a 1/1 ARM where payments for the first year are interest-only and the balance of the loan is fully amortized over the remaining 29 years. The initial composite rate as well as the initial interest rate for the first year of the loan is 4.5% and there are no caps or limitations on future rates. The composite rate on the loan is determined by the 1-year LIBOR rate plus a margin of 2%. If you expect the yield on the 1-year LIBOR to be 4% one year from now, what monthly payment do you expect to make at the beginning of year 2?

QUESTION 9

A price level adjusted mortgage (PLAM) is made with the following terms: Amount=95000, Initial interest rate=4%, Term=30 yrs, Points = 6%. Payments are to be adjusted at the beginning of each year. Assuming inflation is expected to be 6% per year for the next five years, what is the payment at the beginning of year 3?

QUESTION 10

[The following information pertains to questions 10, 11, and 12]. A basic ARM is made for $200,000 at an initial interest rate of 6% for 30 years with an annual reset date. The borrower believes that the interest rate at the beginning of year 2 will increase to 7%. Assuming that a fully amortizing loan is made, what will monthly payments be during year 1?

QUESTION 11

What will the loan balance be at the end of year 1?

QUESTION 12

Given that the interest rate is expected to be 7% at the beginning of year 2, what will monthly payments be during year 2?