Question: A basic ARM is made for $212,000 at an initial interest rate of 6 percent for 30 years with an annual reset date. The borrower

A basic ARM is made for $212,000 at an initial interest rate of 6 percent for 30 years with an annual reset date. The borrower believes that the interest rate at the beginning of year (BOY)2 will increase to 7 percent. Required: o. Assuming that a fully amortizing loan is made, what will the monthly payments be during year 1 ? b. Based on (a) what will the loan balance be at the end of year (EOY)1 ? c. Given that the interest rate is expected to be 7 percent at the beginning of year 2 , what will the monthly payments be during year 2 ? d. What will be the loan balance at the EOY 2 ? e. What would be the monthly payments in year 1 if they are to be interest only? A basic ARM is made for $212,000 at an initial interest rate of 6 percent for 30 years with an annual reset date. The borrower believes that the interest rate at the beginning of year (BOY)2 will increase to 7 percent. Required: o. Assuming that a fully amortizing loan is made, what will the monthly payments be during year 1 ? b. Based on (a) what will the loan balance be at the end of year (EOY)1 ? c. Given that the interest rate is expected to be 7 percent at the beginning of year 2 , what will the monthly payments be during year 2 ? d. What will be the loan balance at the EOY 2 ? e. What would be the monthly payments in year 1 if they are to be interest only

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