You bought a home with an adjustable-rate mortgage. The margin on the loan is 5.4% and the rate cap is 6.25% over the life of the loan. If the current index rate is 7%, what is the calculated interest rate of the ARM?

 

Interest Rate of the ARM = 12.4%

Step-by-step explanation

Solution :

The calculate interest rate of the ARM can be calculated with the use of following formula :

Calculated Interest Rate = Index Rate + Lender's Margin

Here, Index Rate = 7% and Lender's Margin = 5.4%

Using these values in the above formula ,

We get,

Calculated Interest Rate of the ARM = 7% + 5.4%

Interest Rate of the ARM = 12.4%