An ARM loan, Loan Amount = $250,000; Monthly Payments, Index = 1-Year Treasury bill. Index at the end of year 1 is 7%. Index at the end of year 2 is 6.5%. Index at the end of year 3 is 8.0%. One Year Adjustable, Margin - 1.50%, Term - 30 years. Interest Rate Caps: annual 2% and life 5.5%, Teaser Rate 5%. The loan has negative amortization.

1. Monthly payment in year 2?
2. Loan Balance in year 2?
3. Monthly Payment in year 3?
4. Loan balance in year 3?
5. What is the effective cost for a 3-year holding period?

Answer rating: 100% (QA)

To calculate the monthly payments and loan balances for each year well follow these steps Step 1 Cal... View the full answer