1. Tim wants to buy an apartment that costs $750,000 with an 85% LTV mortgage. Tim got a 30 year, 3/1 ARM with an initial teaser rate of 4.25%. The reset margin on the loan is 300 basis points above 1 year CMT. There are no caps. Tim anticipates the index to be 3.50% at the time of the 1st reset.
What is Tim’s monthly mortgage payment going to be during the 1st 3 years?
2. Tim wants to buy an apartment that costs $750,000 with an 85% LTV mortgage. Tim got a 30 year, 3/1 ARM with an initial teaser rate of 3.75%. The reset margin on the loan is 300 basis points above 1 year CMT. There are no caps. The index was 1% at the time of origination. Tim also had to pay 1 point for this loan.
Compute the true APR (annualized IRR) for this loan.