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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?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M9864406

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