Kk.263. You are a new loan officer with Alpha Mortgage, and the manager of the loan department has just presented a problem to you. He isunable to complete the APR calculation on an adjustable rate mortgage that a borrower applied for yesterday. The loan features initialpayments based on a 5 percent rate of interest at loan closing. The current composite rate on the loan is 7 percent. Two discountpoints have been paid by the borrower. Any difference between borrower payments and the interest payment required at thecomposite rate will be accrued in the mortgage balance in the form of negative amortization. The mortgage amount desired by theborrower is $75,000 for a 30-year term.Required:Determine the APR, assuming that the ARM is made with a 2 percent annual and 5 percent over-the-life interest rate cap. (Do notround intermediate calculations.)APR%

Information we have Rate of Interest at Loan closing 5% Current Composite Rate on the Loan…

Answered: You are a new loan officer with Alpha…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You are a new loan officer with Alpha Mortgage, and the manager of the loan department has just presented a problem to you. He is unable to complete the APR calculation on an adjustable rate mortgage that a borrower applied for yesterday. The loan features initial payments based on a 5 percent rate of interest at loan closing. The current composite rate on the loan is 7 percent. Two discount points have been paid by the borrower. Any difference between borrower payments and the interest payment required at the composite rate will be accrued in the mortgage balance in the form of negative amortization. The mortgage amount desired by the borrower is $68,000 for a 30-year term. Required: Determine the APR, assuming that the ARM is made with a 2 percent annual and 5 percent over-the-life interest rate cap. (Do not round intermediate calculations.) APR
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