If the Composite Rate 10 the 2 cap applies and the interest rate is 9 If the

# If the composite rate 10 the 2 cap applies and the

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If the Composite Rate = 10%, the 2% cap applies and the interest rate is 9%. If the Composite Rate = 8%, the 2% cap does not apply and the interest rate is 8%. Adjustable Rate Mortgages Example: Payment Caps Loan Amount = \$100,000 Starting Rate = 6% Term = 30 Years Adjustment Interval = 1 Year Payment Cap = 5% Initial Payment: = \$100,000 = 360 = 6 = \$599.55 n i PMT PV EOY1 Loan Balance: = 348 = \$98,771.9 9 n PV New payment is based on loan balance of \$98,771.99 The dollar increase in the payment cannot exceed the capped payment. Capped Payment = \$599.55 x 1.05 = \$629.53 If the Composite Rate = 10%, the unrestricted payment would be: = \$98,771.99 = 348 = 10 = \$871.64 n i PMT PV Since the capped payment is \$629.53, it would be used. If there is negative amortization, = \$98,771.99 = 12 = \$629.53 = \$101,204.32 would be the EOY2 Loan Balance n FV PMT PV #### You've reached the end of your free preview.

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• Winter '16
• dr lizam
• Interest, Mortgage loan
• • • 