Larry and Cindy Lynden purchased a townhome in Alison Estates with an adjustable-rate mortgage. The lender's margin on the loan is 4.1 % and the overall rate cap is 5 % over the life of the loan. The current index rate is the prime rate, 3.25%. a. What is the calculated interest rate of the ARM? Calculated ARM interest rate = Index rate + Lender's margin Calculated ARM interest rate = 3.25 + 4.1 = 7.35 _ _ % b. What is the maximum overall rate of the loan? Maximum overall ARM rate = Initial rate + Overall rate cap Maximum overall ARM rate = 7.35 + 5.0 = 12.35 _ _ %

BuyFind

Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
Publisher: Cengage Learning
ISBN: 9781305585447
BuyFind

Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
Publisher: Cengage Learning
ISBN: 9781305585447

Solutions

Chapter 14.I, Problem 19RE
Textbook Problem

Larry and Cindy Lynden purchased a townhome in Alison Estates with an adjustable-rate mortgage. The lender's margin on the loan is 4.1 % and the overall rate cap is 5 % over the life of the loan. The current index rate is the prime rate, 3.25%.

a. What is the calculated interest rate of the ARM?

Calculated ARM interest rate = Index rate + Lender's margin

Calculated ARM interest rate =   3.25   +   4.1   =   7.35 _ _ %

b. What is the maximum overall rate of the loan?

Maximum overall ARM rate = Initial rate + Overall rate cap

Maximum overall ARM rate =   7.35   +   5.0   =   12.35 _ _ %

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Chapter 14 Solutions

Contemporary Mathematics for Business & Consumers
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