Real Estate Finance & Investments 15th Edition by William Brueggeman, Jeffrey Fisher

Exercise 2

A basic ARM is made for $200,000 at an initial interest rate of 6 percent for 30 years with an Annual reset date. The borrower believes that the interest rate at the beginning of year ( BOY ) 2 will increase to 7 percent.
a. Assuming that a fully amortizing loan is made, what will the monthly payments be during year 1
b. Based on ( a ) what will the loan balance be at the end of year ( EOY ) 1
c. Given that the interest rate is expected to be 7 percent at the beginning of year 2, what will the monthly payments be during year 2
d. What will be the loan balance at the EOY 2
e. What would be the monthly payments in year 1 if they are to be interest only