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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

Kate Fitzgerald bought a home with an adjustable-rate mortgage. The lender’s margin on the loan is 3.4 % . and the overall rale cap is 7 % over the life of the loan. The current index rate is 3.2 % .

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

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

(a)

To determine

To calculate: The current interest rate of the adjustable rate mortgage and the maximum overall rate of return and lender’s margin on the loan at the rate of 3.4%, the overall cap rate is 7% and the current index rate is 3.4 %.

Explanation

Given Information:

The information given in the question is the lender’s margin on the loan at the rate of 3.4%, the overall cap rate is 7% and the current index rate is 3.4 %.

Formula used:

The current interest rate of the ARM can be calculated in the following manner:

Calculated ARM Interest Rate=Index Rate+Lenders Margin

Calculation:

Consider the provided data the lender’s margin on the loan at the rate of 3

(b)

To determine

To calculate: The current interest rate of the adjustable rate mortgage and the maximum overall rate of return and lender’s margin on the loan at the rate of 3.4%, the overall cap rate is 7% and the current index rate is 3.4 %.

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