Formula and explanations CHAPTER 5

Adjustable and Floating Rate Mortgage Loans (real estate finance and investments

Formula and explanations CHAPTER 5 Adjustable and Floating Rate Mortgage Loans MULTIPLE CHOICE 1. A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments. The first two years of the loan have a \"teaser\" rate of 4%, after that, the rate can reset with a 2% annual rate cap. On the reset date, the composite rate is 5%. What would the Year 3 monthly payment be? (B) (A) $955 (B) $1,067 (C) $1,071 (D) $1,186 (E) Because of the rate cap, the payment would not change. 2. A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments. The first two years of the loan have a \"teaser\" rate of 4%, after that, the rate can reset with a 5% annual payment cap. On the reset date, the composite rate is 6%. What would the Year 3 monthly payment be? (C) (A) $955 (B) $1,067 (C) $1,003 (D) $1,186 (E) Because of the payment cap, the payment would not change. 3. Assume that the loan in the previous question allowed for negative amortization. What would be the outstanding balance on the loan at the end of Year 3? (B) (A) $190,074 (B) $192,337 (C) $192,812 (D) $192,926 -1