[Note: The information presented here applies to questions 3, 4, 5, and 6.] The

Question

[Note: The information presented here applies to questions 3, 4, 5, and 6.] The fully-indexed rate on a 5/1 ARM with a maturity of 30 years is determined by the yield on the one-year LIBOR plus a margin of 250 basis points. If the fully-indexed (composite) rate is currently 6%, what is the current yield on the one-year LIBOR (in percent)?

If the initial rate on this loan is 4.5% and the amount borrowed is $375,000, what will the scheduled payments be for the first five years of the mortgage?

If there are no caps or other limitations on loan payments in this mortgage, what are the scheduled payments in the sixth year of the loan if the yield on the one-year LIBOR is 5% at the first reset date?

Explanation / Answer

As per the rule, I can solve first question only.

250 basis points means 2.50%.

Libor rate = fully index rate + margin rate

                   = 6% -2.5%

                    = 3.5%

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