You are looking to finance your home. The bank is offering a three-year ARM (adjustable-rate mortgage)...

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Finance

You are looking to finance your home. The bank is offering athree-year ARM (adjustable-rate mortgage) with an introductory rateof 3.60%. It has a 3.00% adjustment cap per adjustment period, alifetime adjustment of 7.00%. The rate is 4.00% over the one-yearLIBOR rate, which is currently 1.35%.
a. What will your interest rate be after three years if theLIBOR rate does not change? (Round your answer to 2 decimalplaces.)
Interest rate %
b. In three years, what it the maximum interest rate you couldbe charged? (Round your answer to 2 decimal places.)
Interest rate %
c-1. If the LIBOR increases 1.50% per year for the next 10years, up to 16.35%, what is the maximum interest rate you willpay? (Round your answer to 2 decimal places.)
Maximum interest rate %
c-2. When will that maximum interest rate take effect?
Ending of year 10
Beginning of year 10
Someone answered this question prior, however, some of theproblems were answered incorrectly!
Thanks for mentoring!

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3.9 Ratings (364 Votes)

a LIBOR rate135 Calculated rate 4135535 Adjustment cap3 Maximum rate after adjustment 363660 interest rate after three years535 Interest Rate after 3 years 535 b Maximum interest See Answer

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