Question: 6. A borrower has been analyzing different adjustable rate mortgage (ARM) alternatives for the purchase of a property. The borrower anticipates owning the property for

6. A borrower has been analyzing different adjustable rate mortgage (ARM) alternatives for the purchase of a property. The borrower anticipates owning the property for five years. The lender first offers a S150,000, 30-year fully amortizing ARM with the following terms: Initial interest rate 6 percent Index = 1-year Treasuries Payments reset each year Margin 2 percert Interest rate cap None Payment cap-Nore Negative anortization- Not allowed Discount poirts 2 percent Based on estimated forward rates, the index to which the ARM is tied is forecasted as follows: Beginning of year BOY) 2-7 percent; (BOY) 3-8.5 percent; (BOY) 4-9.5 percent;(BOY) 5-11 percent. Compute the payments, loan balances, and yield for the unrestricted ARM for the five-year period
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
