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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

Heather Gott bought a home with an adjustable-rate mortgage. The lender’s margin on the loan is 3.5 % , and the overall rate cap is 8 % over the life of the loan.

a. If the current index rate is 3.75 % , what is the calculated interest rate of the ARM?

b. What is the maximum overall ARM rate of Heather's loan?

(a)

To determine

To calculate: The interest rate of the ARM, if the current index is 3.75% and the lender margin on the loan is 3.5% and overall rate cap is 8% over the life of a loan.

Explanation

Given Information:

The lender margin on the loan is 3.5% and overall rate cap is 8% over the life of a loan.

Formula used:

The ARM interest is the sum of the index rate and lender’s margin.

ARM interest rate= Index rate + Lender's margin

Calculation:

The current index is 3.75% and the lender margin on the loan is 3.5% and overall rate cap is 8%

(b)

To determine

To calculate: The maximum overall rate of the ARM, if the current index is 3.75% and the lender margin on the loan is 3.5% and overall rate cap is 8% over the life of a loan.

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