FINA 475 Lecture Notes - Lecture 13: Adjustable-Rate Mortgage, Fixed-Rate Mortgage, Pension
29 Nov 2017
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Final: chapter 24, case study on pension plan, chapter 10, chapter 11. Basic arm is one that resets periodically and has no other terms. Mortgage rate is affected by other terms that include. Periodic rate cap limits the amount the interest rate my increase or decrease at the reset date. Most arms have an upper limit on the mortgage rate that can be charged over life of loan. Lifetime rate cap is expressed in terms of the initial rate. Arms also have a lower limit (floor) on interest rate. The amount of monthly loan payment that represents repayment of principal is called amortization. Frm (fixed rate mortgage) and arm are fully amortized loans. Monthly mortgage payments are made so that they contain interest and the full principal when last payment is made. As ti(cid:373)e goes o(cid:374) payi(cid:374)g less i(cid:374)terest a(cid:374)d (cid:373)ore pri(cid:374)cipal. Formula for calculating monthly payment on fully amortizing mortgage.
