You have taken out a $100,000, one-year ARM. The teaser rate in the first year is 4.5% (annual). The index interest rate after the first year is 3.25% and the margin is 2.75%. (Note: the term on this ARM is 30 years). There is also a periodic (annual) rate cap of 1.00%. Given this information, determine the monthly mortgage payment you would be scheduled to make in month 13 of the mortgage loan's term.

Question

Quizplus · Accepted Answer

In month 13, the interest rate is adjusted to the index rate plus the margin, which is 3.25% + 2.75% = 6.00%. However, due to the 1.00% cap, the rate can only increase to 5.50% from the initial 4.5%. Using this rate, the monthly payment is calculated for the remaining 29 years.

You Have Taken Out a $100,000, One-Year ARM