FHCE 2100 Lecture Notes - Lecture 29: Libor, United States Treasury Security, Interest Rate

• School: University of Georgia
• Department: Financial Planning, Housing and Consumer Economics
• Course: FHCE 2100
• Professor: Dr.Kabaci

Document Summary

Interest rate on arm is made up of two parts: Margin (constant over the life of loan) Extra amount that lenders add fixed % This cap says how much the interest rate can increase the first time it adjusts after the fi(cid:454)edrate period e(cid:454)pires. This cap says how much the interest rate can increase in the adjustment periods that follow. This (cid:272)ap is (cid:373)ost (cid:272)o(cid:373)(cid:373)o(cid:374)l(cid:455) t(cid:449)o per(cid:272)e(cid:374)t, (cid:373)ea(cid:374)i(cid:374)g that the (cid:374)e(cid:449) rate (cid:272)a(cid:374)"t (cid:271)e (cid:373)ore tha(cid:374) t(cid:449)o percentage points higher than the previous rate. This cap says how much the interest rate can increase in total, over the life of the loan. This cap is most commonly five percent, meaning that the rate can never be five. For example, the maximum rate and payment you would experience for a ,000 5/1 loan (2/2/5) at 3. 99% would be: 1-5 (initial loan) ,00 3. 99% per month. 6 (resets 2% higher) ,136 5. 99% ,140 per month.