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Examples Using the Negative ARM vs FRM Calculator

Below are examples of how to input the loan information, rate index, margin,
and other information required to answer specific questions. After you view
the input screen you may press the Display Interest Costs button to view the results.

David is purchasing a house which he expects to be in about 5 years, but might conceivably move out in 3 or stay as long as 12. He wants to make a down payment of 20% on a $300,000 house and is in the 25.5% tax bracket.

Example 1:

A 30-year FRM at 6% and 2 points, with total fees of $2500, is being compared to a 30-year ARM that has an initial rate of 2.95% for 3 months after which the rate adjusts monthly. The ARM is indexed to COFI, the most recent value of which is 1.5%. The margin is 2.5% and the maximum and minimum rates are 11% and 3%, respectively. The ARM has 1.5 points but other fees are the same as on the FRM. The initial payment of $737.50 holds for 12 months, and adjusts every 12 months thereafter, subject to a 7.5% payment cap. There is a negative amortization cap of 115%. David wants to compare the 2 loans on the assumption that the index rate does not change, and alternatively on the assumption that rates increase by as much and as fast as the contract allows.

Example 1
Example 2:

A 15-year FRM at 5.5% and 1.5 points has a $350 application fee, credit report fee of $50, appraisal fee of $400, and miscellaneous other fees of $300. This is being compared to a 30-year ARM that is identical to the ARM in example 1 except that instead of a negative amortization cap, it has a recast period of 5 years. David wants to compare the 2 loans on the assumption that the index rate rises by 1% a year for 6 years, and also on the assumption that the index declines by .5% a year for 3 years.

Example 2
Example 3:

Using the same mortgages as in case 2 above, David wants to make a comparison based on the assumption that rates fluctuate up and down by 1.5% every 2 years. In one case, he wants the increase to occur first, and in another he wants the decrease to occur first.

Example 3
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