chap 10 d - market-determined interest rate • Advantage...

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Characteristics of a Fixed-Rate Mortgage Estimating the monthly mortgage payment Some lenders are now offering 40 and 50 year mortgages Many mortgage loan Web sites offer mortgage calculators to estimate monthly payments based on a specific mortgage amount, interest rate, and maturity Financial Planning Online: Estimating Mortgage Payments Go to: http://www.bloomberg.com/invest/calculators/mortgage.html This Web site provides the monthly payment on a mortgage based on the loan amount, interest rate, and the loan maturity Financial Planning Online: Should You Obtain a Fixed- or an Adjustable-Rate Mortgage? Go to: http://www.federalreserve.gov/pubs/ arms/arms_english.htm This Web site provides valuable information regarding adjustable-rate mortgages that may be useful when deciding whether to finance with a fixed-or adjustable-rate mortgage Characteristics of an Adjustable-Rate Mortgage Adjustable-rate mortgage (ARM): a mortgage where the interest owed changes in response to movements in a specific
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Unformatted text preview: market-determined interest rate • Advantage is that rates could go down; disadvantage is that rates could increase • Initial rate—usually relatively low • Interest rate index—determines whether mortgage rate goes up • Frequency of rate adjustments—varies • Characteristics of an Adjustable-Rate Mortgage (cont’d) • Frequency of rate adjustments • Specified in mortgage contract • Many alternatives available from once a year to every five years • Make sure you can afford the monthly payments if interest rates increase • Characteristics of an Adjustable-Rate Mortgage (cont’d) • Caps on adjustable rate mortgages • Caps: maximum and minimum fluctuations in the interest rate on an ARM • Limits the fluctuations in interest rate • Financing with a fixed- versus an adjustable-rate mortgage • Depends on your expectation of future interest rates...
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This note was uploaded on 02/22/2012 for the course FINANCE 250 taught by Professor Maryevans during the Spring '12 term at Rutgers.

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