Question

Molly Swift has been analyzing different adjustable rate mortgage (ARM) alternatives for the purchase anew home. She anticipates owning the home for six years. The lender offers Ms. Swift a $150,000, 30 year ARM with the following terms: Initial interest rate 7.5 percent Index 1 year Treasuries Payments adjusted each year Margin-3 percent Interest rate cap-2 % annually/6 % lifetime Payment cap - none Negative amortization- No Discount points-2 percent Based on estimated forward rates computed from the yield curve on U. S. Treasury bills, the index to which the ARM is tied is forecasted to be as follows: beginning of year (BOY) 2-9 percent, BOY 3-7 percent; BOY 4-1l percent; BOY 5-13 percent, BOY 6-12 percent Compute the payments, loan balances, and yield for the ARM for the six year period.

Answer 1

Your adjustable rate loan of $150,000.00 for 30 years has a starting payment of $1,048.82. Your interest rate remains fixed at 7.5% for 60 months, after that time your interest rate is expected to change by 0.25% every 12 months. Your highest monthly payment, in this scenario, would be $1,048.82.

Payment Number	Interest Rate	Monthly Payment
1	7.5%	$1,048.82
60	2%	$601.56

Total Payments $243,397 Total Interest $93,397

Mortgage Information

Loan amount	$150,000.00
Term	30 years
Starting interest rate	7.5%
First monthly payment	$1,048.82
Interest rate cap	2%
Expected adjustment	0.25%
Rate remains fixed for	60 months
Periods between adjustments	12 months
Total payments	$243,397.37
Total interest	$93,397.37

Payment Schedule

Year	Total Payments	Principal Paid	Interest Paid	Ending Principal Balance
				$150,000.00
1	$12,585.84	$1,382.74	$11,203.10	$148,617.26
2	$12,585.84	$1,490.07	$11,095.77	$147,127.19
3	$12,585.84	$1,605.77	$10,980.07	$145,521.42
4	$12,585.84	$1,730.42	$10,855.42	$143,791.00
5	$12,585.84	$1,864.76	$10,721.08	$141,926.24
6	$7,218.72	$4,420.57	$2,798.15	$137,505.67
7	$7,218.72	$4,509.80	$2,708.92	$132,995.87
8	$7,218.72	$4,600.83	$2,617.89	$128,395.04
9	$7,218.72	$4,693.69	$2,525.03	$123,701.35
10	$7,218.72	$4,788.42	$2,430.30	$118,912.93
11	$7,218.72	$4,885.07	$2,333.65	$114,027.86
12	$7,218.72	$4,983.67	$2,235.05	$109,044.19
13	$7,218.72	$5,084.28	$2,134.44	$103,959.91
14	$7,218.72	$5,186.90	$2,031.82	$98,773.01
15	$7,218.72	$5,291.62	$1,927.10	$93,481.39
16	$7,218.72	$5,398.39	$1,820.33	$88,083.00
17	$7,218.72	$5,507.35	$1,711.37	$82,575.65
18	$7,218.72	$5,618.51	$1,600.21	$76,957.14
19	$7,218.72	$5,731.96	$1,486.76	$71,225.18
20	$7,218.72	$5,847.63	$1,371.09	$65,377.55
21	$7,218.72	$5,965.65	$1,253.07	$59,411.90
22	$7,218.72	$6,086.08	$1,132.64	$53,325.82
23	$7,218.72	$6,208.90	$1,009.82	$47,116.92
24	$7,218.72	$6,334.22	$884.50	$40,782.70
25	$7,218.72	$6,462.11	$756.61	$34,320.59
26	$7,218.72	$6,592.54	$626.18	$27,728.05
27	$7,218.72	$6,725.58	$493.14	$21,002.47
28	$7,218.72	$6,861.34	$357.38	$14,141.13
29	$7,218.72	$6,999.83	$218.89	$7,141.30
30	$7,218.89	$7,141.30	$77.59	$0.00