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ARM CALCULATION PROBLEMS questions and answers already solved 2024
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ARM CALCULATION PROBLEMS questions and answers already solved 2024
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ARM CALCULATION PROBLEMS, ARM401
B - Start Rate/First Year Rate = 5.250% - 2.000% Periodic Rate Cap
- 6.000% Lifetime Rate Cap
2nd year = 5.250% 1st Year Rate + 2.00% Periodic Rate Cap = 7.250% = The
highest this
1-year ARM could adjust to in year 2. - correct answer ✔1. A borrower
obtains a 1-year Adjustable Rate Mortgage. The index is the 1 Year Constant
Maturity Treasury Rate (CMT) and is currently at 1.125%. The margin is
2.500%. The initial rate
and first year rate are 3.250%. The ARM rate caps are 2/6% and are applied
to the initial first
year start rate. Assuming a rising interest rate environment, what is the
highest rate this loan
could adjust to in year 2?
a. 3.625%
b. 5.250%
c. 5.625%
d. 9.250%
C - Start Rate/Initial Rate = 4.375% - 2.000% Periodic Rate Cap
- 6.000%Lifetime Rate Cap.
Start Rate/Initial Rate = 4.375% + 6.000% Life Cap = 10.375% Maximum Rate
- correct answer ✔2. A lender has offered a borrower a 1 year ARM. The
index is the 11th District Cost of Funds
,Index currently at 2.375%. The margin offered by the lender is 3.000%. The
fully indexed rate is
5.375%. The initial payment rate for the ARM is 4.375% with payment caps of
2/6. The interest
payment rate will be rounded up to the nearest 1/8 percentage point (.125%)
at each adjustment.
What is the maximum interest rate this 1 year ARM could adjust to?
a. 6.000%
b. 8.375%
c. 10.375%
d. 11.375%
A - Initial Start Rate = 3.750% - Initial Rate Cap = 3.000%
- Periodic Rate Cap = 2.000%
- Lifetime Rate Cap = 6.000%
Initial Start Rate 3.750% + Initial Rate Cap 3.000% = 6.750% maximum rate
allowed at first adjustment.
First adjustment index rate = 3.000%
+ Margin 2.500% =
Fully Indexed Rate at 1st adjustment 5.500%
Fully Indexed Rate is below the maximum Initial rate cap of 6.375%. Borrower
gets 5.500% - correct answer ✔The borrower has applied for a 5-1 ARM with
an initial start rate of 3.750%. The index is the
LIBOR and is currently at 1.250%. The margin is 2.500%. The ARM has 3-2-6
caps. At the
time of the first adjustment the index has risen to 3.000%. What is the new
monthly interest
rate at the time of the first adjustment?
,a. 5.500%
b. 7.250%
c. 9.000%
d. 9.750%
B - 5th Year Rate = 7.750% - 2.000% Periodic Rate Cap
- 6.000% Lifetime Rate Cap
8th Year Index is 2.500% + 2.000% Margin = 4.500% Fully Indexed Rate
The maximum this 1-year ARM could adjust down is 2.000% from the current
rate of
7.750% (5th year rate). 7.750% (5th year rate)
- 2.000% (Periodic Rate Cap)
= 5.750% (6th year rate) - correct answer ✔4. The borrower is in year 5, of a
1-year adjustable rate mortgage. The original terms of the ARM
were:
• Index: 11th District Cost of Funds Index - COFI
• Margin: 2.000%
• Initial Payment Rate: 5.000
• Payment Caps: 2/6
The borrower's current payment interest rate is 7.750%. On the next
adjustment date the index
will be at 2.500%. Based on the above data, what will be the new interest rate
at the time of
adjustment?
a. 4.500%
b. 5.750%
c. 7.000%
, d. 7.750%
A - Start Rate/Initial Rate = 3.875% - 1.000% Periodic Rate
- 5.000% Lifetime Rate Cap
Index at first adjustment (year 2) 4.500% + 1.000% margin = 6.500% Fully
Indexed Rate
for year 2.
The maximum this 1-year ARM could adjust up is 1.00% from the current rate
of
3.875%% (1st year rate). 3.875% (1st year rate)
+ 1.000% (Periodic Rate Cap)
= 4.875% (maximum 2nd year rate) - correct answer ✔A 1-year ARM has an
initial interest start rate of 3.875% and closed on February 15, 2010. The
index is an average yield on 1 Year Constant Maturity Treasury Rate, as
made available by the
Federal Reserve Board. The margin is 2.000%. On the date of the first
adjustment the index is
at 4.500%. The interest rate caps for the 1 year ARM are 1/5% and are
applied to the initial start
rate. The new payment rate for the second year is:
a. 4.875%
b. 5.875%
c. 6.500%
d. 9.875%
ARM 401
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