ASU Business Finance Becoming a Mortgage Loan Originator a Rates Discussion
Help me study for my Business class. I’m stuck and don’t understand.
Please answer the following 5 questions correctly. This determines my completion of a course so if you are not confident on how to do it, please give the opportunity to someone else.
A borrower received a 30-year ARM mortgage loan for $200,000. Rate caps are 3/2/6. The start rate is 3.50% and the loan adjusts every 12 months for the life of the mortgage. The index used for this mortgage is LIBOR (for this exercise, 3.00% at the start of the loan, 4.45% at the end of the first year, and 4.50% at the end of the second year). The margin on the loan is 3.00%, which remains the same for the duration of the loan.
What is the initial rate (start rate) the borrower will pay during the first year?
What is the interest rate the borrower will pay after the first rate adjustment?
What is the fully indexed rate after the second year?
What is the maximum interest rate the borrower will pay during the 30-year term for this loan?
If the interest rate is at its maximum, what would the LIBOR index have to be to reach the maximum interest rate?