Given the following Adjustable Rate Mortgage (ARM): Loan amount: Term: $100,000 20 years, monthly payment Discount...

 

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Given the following Adjustable Rate Mortgage (ARM): Loan amount: Term: $100,000 20 years, monthly payment Discount point and fee: $8,000 Teaser rate: Margin: 7.25% 225 basis points Rate caps: 2.5% annually, 6% lifetime Market Index: 1 2 3 4 5 Index 8.6% 9.5% 10.5% 11.5% 10.5% What is the effective cost of this loan if you pay it off at the end of year 2? Given the following Adjustable Rate Mortgage (ARM): Loan amount: Term: $100,000 20 years, monthly payment Discount point and fee: $8,000 Teaser rate: Margin: 7.25% 225 basis points Rate caps: 2.5% annually, 6% lifetime Market Index: 1 2 3 4 5 Index 8.6% 9.5% 10.5% 11.5% 10.5% What is the effective cost of this loan if you pay it off at the end of year 2?

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To calculate the effective cost of the Adjustable Rate Mortgage ARM if its paid off at the end of ye... View the full answer