You are considering a 5/1 ARM and a 30 Year fixed rate mortgage to finance your...

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You are considering a 5/1 ARM and a 30 Year fixed rate mortgage to finance your property. The loan will be for $400,000. The ARM has closing costs of $5561 and an APR of 2.625%. It has an annual interest rate cap of 2% and a lifetime cap of 5%. The fixed rate has closing costs of $4314 and an APR of 4%. You do not plan to make any early prepayments, unless you sell the house. a. Assuming a worst case scenario for interest rates, what is the effective cost for each loan and which loan is preferred if you anticipate selling the home in 5 years. b. Assuming a worst case scenario for interest rates, what is the effective cost for each loan and which loan is preferred if you anticipate selling the home in 10 years. c. Assuming a worst case scenario for interest rates, what is the effective cost for each loan and which loan is preferred if you anticipate keeping the home at least 30 years. You are considering a 5/1 ARM and a 30 Year fixed rate mortgage to finance your property. The loan will be for $400,000. The ARM has closing costs of $5561 and an APR of 2.625%. It has an annual interest rate cap of 2% and a lifetime cap of 5%. The fixed rate has closing costs of $4314 and an APR of 4%. You do not plan to make any early prepayments, unless you sell the house. a. Assuming a worst case scenario for interest rates, what is the effective cost for each loan and which loan is preferred if you anticipate selling the home in 5 years. b. Assuming a worst case scenario for interest rates, what is the effective cost for each loan and which loan is preferred if you anticipate selling the home in 10 years. c. Assuming a worst case scenario for interest rates, what is the effective cost for each loan and which loan is preferred if you anticipate keeping the home at least 30 years.

Answer rating: 100% (QA)

Assuming a worst case scenario for interest rates 51 ARM Initial interest rate 2625 for 5 years Fully indexed rate 7625 2625 2 5 30year fixed rate Int... View the full answer