The Cunninghams purchased a new home for $375,000 with a down payment of $140,000. They obtained a 15-year adjustable rate
The Cunninghams purchased a new home for $375,000 with a down payment of $140,000. They obtained a 15-year adjustable rate mort-gage with the following terms. The interest rate is based on the one-year Treasury bill rate, which is currently at 1.0%, and the add-on rate, which is 3.5%. The initial rate period is 5 years, and thereafter the interest rate is adjusted once a year and a new monthly mortgage payment is calculated.
(a) Determine the Cunninghams’ initial ARM rate.
(b) Determine the Cunninghams’ initial monthly payment for principal and interest.
(c) If, after the 5-year initial rate period, the rate of the one-year Treasury bill rises to 2.5%, determine the Cunninghams’ new ARM rate.
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