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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

Joe and Gloria Moutran art purchasing a house in Winter Springs financed with an adjustable- rate mortgage. The lender’s margin on the loan is 2.75 % . and the overall rate cap is 6.2 % over the life of the loan. The current index rate is 5.8 % .

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

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

(a)

To determine

To calculate: The calculated rate of interest of adjustable rate mortgage when lenders margin is 2.75%, the over all rate cap is 6.2% also given is the corrent index rate as 5.8%.

Explanation

Given information:

The lenders margin is 2.75% the over all rate cap is 6.2% also given is the corrent index rate as 5.8%.

Formula used:

The calculated ARM rate:

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

Calculation:

The provided index rate is 5.8% and Lender’s margin 2.75%.

Now substitute, 5.8% for Index rate and 2.75% for Lender’s margin ARM interest rate formula,

Calculated ARM interest rate=5

(b)

To determine

To calculate: The the maximum overall ARM rate of Loan when lenders margin is 2.75%, the over all rate cap is 6.2% also given is the corrent index rate as 5.8%.

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