Assume that a lender offers a 30-year, $147,000 adjustable rate mortgage (ARM) with the following terms: Initial interest rate=7.5 percent Index = one-year Treasurles 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 (BOM) 2-7 percent: (BOY) 3 8.5 percent; (BOY) 4 9.5 percent, (BOY) 5-11 percent. Required: a. Compute the payments and loan balances for the ARM for the five-year period. b. Compute the yield for the ARM for the five-year period.
Assume that a lender offers a 30-year, $147,000 adjustable rate mortgage (ARM) with the following terms: Initial interest rate=7.5 percent Index = one-year Treasurles 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 (BOM) 2-7 percent: (BOY) 3 8.5 percent; (BOY) 4 9.5 percent, (BOY) 5-11 percent. Required: a. Compute the payments and loan balances for the ARM for the five-year period. b. Compute the yield for the ARM for the five-year period.
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 12P
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Mortgages
A mortgage is a formal agreement in which a bank or other financial institution lends cash at interest in return for assuming the title to the debtor's property, on the condition that the obligation is paid in full.
Mortgage
The term "mortgage" is a type of loan that a borrower takes to maintain his house or any form of assets and he agrees to return the amount in a particular period of time to the lender usually in a series of regular equally monthly, quarterly, or half-yearly payments.
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Assume that a lender offers a 30-year, $147,000 adjustable rate mortgage (ARM) with the following terms:
Initial interest rate=7.5 percent
Index one-year Treasurles
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 (BOM) 2-7 percent:
(BOY) 3 8.5 percent; (BOY) 4 9.5 percent; (BOY) 5-11 percent.
Required:
a. Compute the payments and loan balances for the ARM for the five-year period.
b. Compute the yield for the ARM for the five-year period.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3e37d0a9-74c8-4250-9a21-add329f5d305%2Fab2e0dcb-192d-43f3-83c5-02aa3c25af2d%2F50tans5_processed.jpeg&w=3840&q=75)
Transcribed Image Text:ces
Assume that a lender offers a 30-year, $147,000 adjustable rate mortgage (ARM) with the following terms:
Initial interest rate=7.5 percent
Index one-year Treasurles
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 (BOM) 2-7 percent:
(BOY) 3 8.5 percent; (BOY) 4 9.5 percent; (BOY) 5-11 percent.
Required:
a. Compute the payments and loan balances for the ARM for the five-year period.
b. Compute the yield for the ARM for the five-year period.
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