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Sam Jones is closing on a 30-year 5/1 Hybrid Adjustable-Rate Mortgage for 250,000. The starting...

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Finance

Sam Jones is closing on a 30-year 5/1 Hybrid Adjustable-Rate Mortgage for 250,000. The starting rate on his loan is 3.25%. The Index on the loan is the 1 Year T-Bill. For the purpose of this exercise, the T-Bill is at 2.75 at the time of the loan closing; it is at 3.75 at the end of the fifth year, and at 4.25 at the end of the sixth year. The margin on the loan is 3.00. The Caps

are 3/2/6.

  1. What is the interest rate on the loan for the first 5 years?

  1. What is the maximum rate Sam will pay over the life of the loan?

  1. What is the rate that the borrower will pay after the first-rate adjustment?

What is the fully indexed rate after the sixth year?

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