Tom has chosen to accept an adjustable rate mortgage. He qualified at a fully in
ID: 2671468 • Letter: T
Question
Tom has chosen to accept an adjustable rate mortgage. He qualified at a fully indexed rate of 7.5%, but is offered 6.0% as a discounted interest rate for the first 3 years of his loan. Tom 3/1 ARM will be based on the LIBOR index which stands at 4.5% today. The interest rate caps for his loan are 2/1/6.A). What percentage is the lender margin for the loan?
B). What is the maximum interest rate & how long does Tom have to pay on the loan?
C). In year seven, Tom's ARM rate is about to adjust. The current arm rate has been 7.75%, but the index rate is now 5.25%. Taking into account the annual interest rate cap and the margin for His loan, what will the new interest rate be?
Explanation / Answer
a.) is 6 % b.) 7.5 % for 3 year c.) 8%