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Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

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BuyFindarrow_forward

Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
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 _ _ %

(a)

To determine

To calculate: The rate of interest of adjustable rate mortgage when lenders margin is 4.10%, the over all rate cap is 5% also given is the corrent index rate as 3.25%.

Explanation

Given information:

The lenders margin is 4.10%, the over all rate cap is 5%, also given is the corrent index rate as 3.25%.

Formula used:

The calculated ARM rate:

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

Calculation:

The provided index rate is 3.25% and Lender’s margin 4

(b)

To determine

To calculate: The maximum overall ARM rate of Loan when lenders margin is 4.10%, the over all rate cap is 5% also given is the corrent index rate as 3.25%.

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