Adjustable Rate Mortgage (ARM)
Fill out the following table based on the assumptions below. Identify if and in which years the caps are violated. What is the percentage change in your monthly payment during the first 5 years of the ARM? ASSUME THE INTEREST ADJUSTS EVERY YEAR.
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Assumptions
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Loan Amount
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$250,000
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Caps
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Term
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30
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Periodic
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1%
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Margin
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2.50%
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Overall
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6%
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Monthly Compounding
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Year
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1
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2
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3
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4
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5
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Index
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1.00%
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1.25%
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1.30%
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1.50%
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2.75%
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Teaser Rate
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3.25%
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Interest Rate
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Loan Balance
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Monthly Payment
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a) Are either of the caps violated? In which years?
b) What is the percentage change in monthly payment from year 1 to year 5?