Interest Calculation Quiz
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Questions and Answers

What does the first number in '2/6 Caps' represent in the context of a 10/1 ARM?

  • Subsequent adjustment cap annually
  • Initial interest rate cap (correct)
  • Discount rate
  • Lifetime adjustment rate cap

    • In the context of a 10/1 ARM, what does 'MTA' stand for?

  • Monthly Transformed Adjustment
  • Mortgage Term Adjustment
  • Monthly Treasury Average (correct)
  • Mortgage Tracker Analysis

    • What is calculated to obtain the Fully Indexed Rate in the example provided?

  • Index + Margin (correct)
  • Margin + Annual Adjustment Cap
  • Index + Discount
  • Initial interest rate cap + Subsequent adjustment rate cap

    • What is the Starter/Teaser Rate formula in the context of a 10/1 ARM?

    <p>Index + Margin - Discount</p> Signup and view all the answers

    In the formula for calculating Maximum 11th Year Rate, what is added to the Starter Rate?

    <p>Annual adjustment cap</p> Signup and view all the answers

    What does 'FIAR' stand for as mentioned in the text?

    <p>Fully Indexed Annual Rate</p> Signup and view all the answers

    Based on the text, how is the 'New FIAR' calculated?

    <p>*New FIAR is obtained by adding Index and Margin</p> Signup and view all the answers

    What does the 'Lifetime Adjustment Cap' represent in a 10/1 ARM?

    <p>*Lifetime Adjustment Cap refers to how much the interest rate can increase over the lifetime of the loan</p> Signup and view all the answers

    'A.Calculate the Fully Indexed Rate: Index + Margin 1.375 2.75 Fully Indexed Rate 4.125%' - What is the Fully Indexed Rate in this calculation?

    <p>$4.125%</p> Signup and view all the answers

    'Example Of A 10/1 ARM With 2/6 Caps Index 1 Year MTA : Discount: Margin: 1.375% 1.00% 2.75% - Calculate Maximum 11th Year Rate: Starter Rate +Annual Adj.Cap 3.125% 2.00% Max 1st Year Rate 5.125% (New Current*) Index 2.25%* +Margin 2.75% *New FIAR 5.00%' - What does 'Max 1st Year Rate' refer to in this calculation?

    <p>*Max 1st Year Rate represents the initial interest rate cap for the first year</p> Signup and view all the answers

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