Exam (elaborations)
ARM CALCULATION PROBLEMS questions and answers already solved 2024
- Course
- Institution
ARM CALCULATION PROBLEMS questions and answers already solved 2024
[Show more]
Content preview
ARM CALCULATION PROBLEMS, ARM401
B - Start Rate/First Year Rate = 5.250% - 2.000% Periodic Rate Cap
- 6.000% Lifetime Rate Cap
2nd year = 5.250% 1st Year Rate + 2.00% Periodic Rate Cap = 7.250% = The
highest this
1-year ARM could adjust to in year 2. - correct answer ✔1. A borrower
obtains a 1-year Adjustable Rate Mortgage. The index is the 1 Year Constant
Maturity Treasury Rate (CMT) and is currently at 1.125%. The margin is
2.500%. The initial rate
and first year rate are 3.250%. The ARM rate caps are 2/6% and are applied
to the initial first
year start rate. Assuming a rising interest rate environment, what is the
highest rate this loan
could adjust to in year 2?
a. 3.625%
b. 5.250%
c. 5.625%
d. 9.250%
C - Start Rate/Initial Rate = 4.375% - 2.000% Periodic Rate Cap
- 6.000%Lifetime Rate Cap.
Start Rate/Initial Rate = 4.375% + 6.000% Life Cap = 10.375% Maximum Rate
- correct answer ✔2. A lender has offered a borrower a 1 year ARM. The
index is the 11th District Cost of Funds
,Index currently at 2.375%. The margin offered by the lender is 3.000%. The
fully indexed rate is
5.375%. The initial payment rate for the ARM is 4.375% with payment caps of
2/6. The interest
payment rate will be rounded up to the nearest 1/8 percentage point (.125%)
at each adjustment.
What is the maximum interest rate this 1 year ARM could adjust to?
a. 6.000%
b. 8.375%
c. 10.375%
d. 11.375%
A - Initial Start Rate = 3.750% - Initial Rate Cap = 3.000%
- Periodic Rate Cap = 2.000%
- Lifetime Rate Cap = 6.000%
Initial Start Rate 3.750% + Initial Rate Cap 3.000% = 6.750% maximum rate
allowed at first adjustment.
First adjustment index rate = 3.000%
+ Margin 2.500% =
Fully Indexed Rate at 1st adjustment 5.500%
Fully Indexed Rate is below the maximum Initial rate cap of 6.375%. Borrower
gets 5.500% - correct answer ✔The borrower has applied for a 5-1 ARM with
an initial start rate of 3.750%. The index is the
LIBOR and is currently at 1.250%. The margin is 2.500%. The ARM has 3-2-6
caps. At the
time of the first adjustment the index has risen to 3.000%. What is the new
monthly interest
rate at the time of the first adjustment?
,a. 5.500%
b. 7.250%
c. 9.000%
d. 9.750%
B - 5th Year Rate = 7.750% - 2.000% Periodic Rate Cap
- 6.000% Lifetime Rate Cap
8th Year Index is 2.500% + 2.000% Margin = 4.500% Fully Indexed Rate
The maximum this 1-year ARM could adjust down is 2.000% from the current
rate of
7.750% (5th year rate). 7.750% (5th year rate)
- 2.000% (Periodic Rate Cap)
= 5.750% (6th year rate) - correct answer ✔4. The borrower is in year 5, of a
1-year adjustable rate mortgage. The original terms of the ARM
were:
• Index: 11th District Cost of Funds Index - COFI
• Margin: 2.000%
• Initial Payment Rate: 5.000
• Payment Caps: 2/6
The borrower's current payment interest rate is 7.750%. On the next
adjustment date the index
will be at 2.500%. Based on the above data, what will be the new interest rate
at the time of
adjustment?
a. 4.500%
b. 5.750%
c. 7.000%
, d. 7.750%
A - Start Rate/Initial Rate = 3.875% - 1.000% Periodic Rate
- 5.000% Lifetime Rate Cap
Index at first adjustment (year 2) 4.500% + 1.000% margin = 6.500% Fully
Indexed Rate
for year 2.
The maximum this 1-year ARM could adjust up is 1.00% from the current rate
of
3.875%% (1st year rate). 3.875% (1st year rate)
+ 1.000% (Periodic Rate Cap)
= 4.875% (maximum 2nd year rate) - correct answer ✔A 1-year ARM has an
initial interest start rate of 3.875% and closed on February 15, 2010. The
index is an average yield on 1 Year Constant Maturity Treasury Rate, as
made available by the
Federal Reserve Board. The margin is 2.000%. On the date of the first
adjustment the index is
at 4.500%. The interest rate caps for the 1 year ARM are 1/5% and are
applied to the initial start
rate. The new payment rate for the second year is:
a. 4.875%
b. 5.875%
c. 6.500%
d. 9.875%
ARM 401
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller LEWISSHAWN55. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $13.49. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
72042 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now
