What is the yield on the following 1-year adjustable rate mortgage? What is the lenders expected...

Transcribed Image Text:

What is the yield on the following 1-year adjustable rate mortgage? What is the lenders expected yield (assume a holding period of term) for the following loan if 1-Year Treasury yields are expected to be 5% today, 8% 12 months from now, 6% 24 months from now, and 4% thereafter? ARM description - Rate resets every year. Fully adjusted rate = Index + 2%. Index = 1-Year Treasury yield at reset date. Lifetime Cap of 9%. Per Period change cap of 2 percentage points (200 bps) No other caps, floors, or max adjustments. Teaser rate of 5% 30-year loan with no points or fees. Loan amount $400,000 Fill out this table: M 01-12 M 13-24 M 24-36 M 37-360 Mortgage Interest Rate Fully Adjusted Rate Index Margin Find the payments: Months 1-12: Months 13-24: Months 25-36: M 37-360: Calculate the rate of return for the lender: What is the yield on the following 1-year adjustable rate mortgage? What is the lenders expected yield (assume a holding period of term) for the following loan if 1-Year Treasury yields are expected to be 5% today, 8% 12 months from now, 6% 24 months from now, and 4% thereafter? ARM description - Rate resets every year. Fully adjusted rate = Index + 2%. Index = 1-Year Treasury yield at reset date. Lifetime Cap of 9%. Per Period change cap of 2 percentage points (200 bps) No other caps, floors, or max adjustments. Teaser rate of 5% 30-year loan with no points or fees. Loan amount $400,000 Fill out this table: M 01-12 M 13-24 M 24-36 M 37-360 Mortgage Interest Rate Fully Adjusted Rate Index Margin Find the payments: Months 1-12: Months 13-24: Months 25-36: M 37-360: Calculate the rate of return for the lender:

Answer rating: 100% (QA)

Mortgage Interest Rate Fully Adjusted Rate Index Margin M 0112 5 NA 5 NA Teaser rate is 5 for months ... View the full answer