Question

An ARM is made for $50,000 for 30 years with the following terms: Initial interest rate = 1 percent Index = 1-year Treasuries Payments reset each year Margin = 200 basis points Interest rate cap = none Payment cap = none Discount points = 1 point Negative amortization is not allowed Based on estimated forward rates, the 1-year Treasury yields to which the ARM is tied is forecasted as follows: Beginning of year (BOY) 2 = one percent (1%); (BOY) 3 = two percent (2%); (BOY) 4 = 3.5%; (BOY) 5 = 5% Compute the interest rate, monthly payments, and loan balances for each year for this unrestricted ARM, and the yield for the entire five-year period.

Answer #1

Assume that a lender offers a 30-year, $150,000 adjustable rate
mortgage (ARM) with the following terms: Initial interest rate 7.5
percent Index one-year Treasuries Payments reset each year Margin 2
percent Interest rate cap 1 percent annually; 3 percent lifetime
Discount points 2 percent Fully amortizing; however, negative
amortization allowed if interest rate caps reached Based on
estimated forward rates, the index to which the ARM is tied is
forecasted as follows: Beginning of year (BOY) 2 7 percent; (BOY)...

A basic ARM is made for $500, 000 at an initial interest rate of
3% with 2 discount points for 10 years. Payments are to be reset
each year. The borrower believes that the interest rate at the
beginning of year 2 will increase to 9 percent. Assuming that
fulling amortizing is made and negative amortization is allowed if
payment cap reached. If the ARM loan has a maximum 5% annual
increase payment cap, what is the expected yield to...

A basic ARM is made for $500, 000 at an initial interest rate of
3% with 2 discount points for 10 years. Payments are to be reset
each year. The borrower believes that the interest rate at the
beginning of year 2 will increase to 9 percent. Assuming that
fulling amortizing is made and negative amortization is allowed if
payment cap reached. If the ARM loan has a maximum 5% annual
increase payment cap, what is the expected yield to...

4. An ARM for $200,000 is made at a
time when the expected start rate is four percent (4%). The loan
will be made with a teaser rate of one percent (1%) for the first
year, after which the rate will be reset. The loan is fully
amortizing, has a maturity of 25 years, and payments will be made
monthly.
a. What will be the monthly payments
during the first year?
b. Assuming that the reset rate is
three percent...

You are given that the teaser rate on a 1/1 ARM is 2.50%. The
mortgage has a margin of 2% above 1-year CMT, subject to a rate cap
5/2/5. Answer the following questions:
(i) What is the maximum rate the mortgage can reset to on its
first reset date?
(ii) The CMT is 2% at the time of the first reset and at the
time of the second reset it goes to 3.5%. What would the rate reset
to for...

Consider a 30-year, two-step mortgage for
$275,000. The initial interest rate is 3.5 percent, but
the loan contract calls for a rate adjustment at the end of year
5. The new rate will be 2 percentage points above the
10-year Treasury bond yield. The interest rate is capped
at 5 percentage points above the initial interest
rate. If the T-bond yield is 5.5% at the time of the
adjustment, what will the payments be for the last 25 years of this
loan?

You would like to borrow $245,000 using a 30-year, 1-year ARM
(adjustable rate mortgages) indexed to the 1- year Treasury
security with a 2.75 percent margin and 2/6 caps (2 percent per
year and 6 percent lifetime). The initial interest rate on this
loan is 2.75 percent. The lender is charging you 1.50 points and
$1,200 in miscellaneous fees to close the loan.
a) What is the initial payment on this mortgage?
b) If the 1-year Treasury security is
yielding...

Five years ago Lilian took out a 30 year 5/1 Hybrid ARM loan
with monthly payments. The initial rate on this loan is 2% and it
resets to LIBOR plus a margin of 150bps. Suppose the remaining
balance after five years of payments is $197,000 and the LIBOR rate
at the first reset if 4%. What will be Lilian's new monthly payment
during 6th year of the loan? Express your answer as a number
rounded to the nearest cent (e.g....

Five years ago Lilian took out a 30 year 5/1 Hybrid ARM loan
with monthly payments. The initial rate on this loan is 2% and it
resets to LIBOR plus a margin of 150bps. Suppose the remaining
balance after five years of payments is $210,107 and the LIBOR rate
at the first reset if 4%. What will be Lilian's new monthly payment
during 6th year of the loan? Express your answer as a number
rounded to the nearest cent (e.g....

Five years ago Lilian took out a 30 year 5/1 Hybrid ARM loan
with monthly payments. The initial rate on this loan is 4% and it
resets to LIBOR plus a margin of 150bps. Suppose the remaining
balance after five years of payments is $291,861 and the LIBOR rate
at the first reset if 4%. What will be Lilian's new monthly payment
during 6th year of the loan? Express your answer as a number
rounded to the nearest cent (e.g....

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