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Question 2 : Forecasting ARM rates Question ( 3 0 points ) Adjustable - rate mortgage amortized over 3 0 years, with an LTV of

Question 2: Forecasting ARM rates Question (30 points)
Adjustable-rate mortgage amortized over 30 years, with an LTV of 80% and a 4.50% teaser rate. The
margin rate for this loan is 3.15%, and the index rate is 4.00%. Assume the index rate increases to 4.30%
at the beginning of year 3. Early repayment charges apply within the first 3 years of the loan at 2% of the
outstanding balance. The property you're looking at is priced at $800,000(ignore acquisition fees).
What is the interest rate on this loan in the following years (9 points):
a. Year 1
b. Year 2
c. Year 3
To fill in the table, calculate the monthly payment and the outstanding loan balance of the ARM at
the beginning of year 1, year 2 and year 3.(18 points)
Calculate the repayment charges if the property was sold after 2 years. (3 points)
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