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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 which for this exercise is 3% 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% which remains the same for the duration of the loan.

question; What is the initial rate the borrower will pay during the first year? \
question; What is the interest rate the borrower will pay after the first rate adjustment?
question; What is the fully indexed rate after the second year?
question: What is the maximum interest the borrower will pay during the 30 year term of the loan?
question; If the interest rate is at its maximum what would the LIBOR index to be reach to maximum interest rate?

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1 answer
  1. 3.00%

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