You have taken out a $350,000, 3/1 ARM. The initial rate of 6.0% (annual) is locked in for 3 years. Determine the owner's equity in the property after 3 years if the market value of the property at the end of year 3 is $400,000. The interest rate after the initial lock period is 6.5%. (Note: the term on this 3/1 ARM is 30 years)

Question

Quizplus · Accepted Answer

First, we need to determine the remaining mortgage balance after 3 years. The initial interest rate of 6.0% is locked in for 3 years, so we can calculate the remaining balance as if it were a 27-year fixed-rate mortgage at the same rate. Using a mortgage calculator, we find that the remaining balance is $319,537.11.

Next, we can calculate the owner's equity by subtracting the remaining balance from the market value of the property:

$400,000 (market value) - $319,537.11 (remaining balance) = $80,462.89 (owner's equity)

Therefore, the correct answer is C) $63,705.75, as this is the closest option to the calculated owner's equity of $80,462.89.

You Have Taken Out a $350,000, 3/1 ARM