You are buying a $1,250,000 property, financing it with an 75% loan-to-value ratio, adjustable rate mortgage with a teaser rate of 2.95%. At the end of the first year, the mortgage loan rate adjusts to 3.875%. The loan has a 5 percent payment cap. You expect the property to appreciate 5% each year. 30 year loan/360 months.
What is the teaser payment?
What is the outstanding balance on the 1-year reset date?
How much principal and interest was paid in the first year?
Given the reset interest rate, what is the uncapped payment?
How much higher (in percent) is the fully amortizing payment?
If the payment is capped, what is the new payment?
If the payment is capped, what is the negative amortization after the next year?
Neglecting selling expenses, what is the return on equity after the second year?