Problem 8-3You are a new loan officer with Alpha Mortgage, and the manager of the loan department has just presented a problem to you. He isunable to complete the APR calculation on an adjustable rate mortgage that a borrower applied for yesterday. The loan features initialpayments based on a 5 percent rate of interest at loan closing.The current composite rate on the loan is 7 percent. Two discountpoints have been paid by the borrower. Any difference between borrower payments and the interest payment required at thecomposite rate will be accrued in the mortgage balance in the form of negative amortization. The mortgage amount desired by theborrower is $65,000 for a 30-year term.Required:a. Determine the APR, assuming that the ARM is made with a 2 percent annual and 5 percent over-the-life interest rate cap.IRR%

APR is the effective interest rate on the net amount of loan after deducting closing costs (points).…

Answered: a. Determine the APR, assuming that the…

a. Determine the APR, assuming that the ARM is made with a 2 percent annual and 5 percent over-the-life interest rate cap. IRR %

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Problem 8-3
You are a new loan officer with Alpha Mortgage, and the manager of the loan department has just presented a problem to you. He is
unable to complete the APR calculation on an adjustable rate mortgage that a borrower applied for yesterday. The loan features initial
payments based on a 5 percent rate of interest at loan closing.The current composite rate on the loan is 7 percent. Two discount
points have been paid by the borrower. Any difference between borrower payments and the interest payment required at the
composite rate will be accrued in the mortgage balance in the form of negative amortization. The mortgage amount desired by the
borrower is $65,000 for a 30-year term.
Required:
a. Determine the APR, assuming that the ARM is made with a 2 percent annual and 5 percent over-the-life interest rate cap.
IRR
%

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