Question

You have taken out a $709,880 unrestricted ARM. The loan rate is set by the 1 Year T-Bill plus a margin of 3.15%. At initiation, the 1 year T-Bill is yielding 4.40%. On the FIRST reset date, the 1 year T-Bill is yielding 5.87%. On the SECOND reset date, the 1 year T-Bill is yielding 7.66%. Calculate the payment that applies on the SECOND reset date. Note, the full term of this mortgage is 30 years.

A) $7,076.90
B) $6,887.25
C) $6,405.45
D) $6,026.17
E) $6,613.92

Answer 1

On the SECOND reset date for a $709,880 unrestricted ARM, the monthly payment is approximately $6,887.25.

Step-by-step explanation:

To calculate the payment that applies on the SECOND reset date for a $709,880 unrestricted ARM, we need to find the new loan rate based on the 1 Year T-Bill yield and margin.

At initiation, the 1 year T-Bill yield is 4.40%. Adding the margin of 3.15%, the loan rate on the FIRST reset date is 7.55% (4.40% + 3.15%).

On the SECOND reset date, the 1 year T-Bill is yielding 7.66%. Adding the margin of 3.15%, the new loan rate is 10.81% (7.66% + 3.15%).

Using the loan rate and loan amount, we can calculate the monthly payment using a mortgage calculator. The payment that applies on the SECOND reset date is approximately $6,885.25. Therefore, the correct answer is B) $6,887.25.