What is the effective borrowing cost

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Reference no: EM132069157

You took an ARM 5 years ago and you were sure to sell the house in 5 years. The mortgage has following contract terms: Loan amount: $250,000 Term (monthly payments) 30 years Adjustment period 1 year Index 1-year T-bill Margin 2.00% Teaser rate 5.30% Discount points 2.00 Periodic (annual) cap 1.50% Lifetime cap 3.00% For 5 years, the 1-year T-bill rates have moved as follows: Year rate 1 3.50% 2 4.00% 3 4.50% 4 6.50% 5 6.50% a. Calculate your monthly payment for each year. b. Build amortization table for the first two years. c. What is the effective borrowing cost (EBC)? Show your work in Excel. Do not forget that this is monthly payment mortgage. Hint: You need to build 60-month cash flows. EBC is IRR of cash flows.

Reference no: EM132069157

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