Everbank Mortgage Rates

Homework Assignment 1

Everbank currently offers the best rate for a 30-year fixed rate mortgage in Boston, Massachusetts. The rate is 4.00%. On a mortgage of $320,000 the monthly payment would be $1550.88, and the total interest paid over the loan would be $238,316.49. The total interest was calculated using the CUMIPMT function in Excel (which can be used to calculate the total interest between any two periods in a loan). The EAR for this loan is 4.2039%. This represents what the interest rate would be if interest were only compounded once per year. If you were able to pay an additional $300 per month you would be able to pay off the loan in 262.9 months. This would save you $71,724.57 in interest over the term of the loan, and the total interest paid over this term would be $166,591.92. If you were able to pay an additional $500 per month you would be able to pay off the loan in 223.99 months. This would save you $98,951.99 in interest over the term of the loan, and the total interest paid over this term would be $139,364.50. If you had poor credit and were required to pay an additional 1.00% on the mortgage rate your monthly payment would be $1,742.36. This would increase your total interest by $68,932.50 to a total of $307,248.99.

TD Bank currently offers the best rate on a 1-year adjustable rate mortgage (ARM). The rate is 2.3750% with interest adjustment caps of 2.00% the first year, 2.00% each following year and 6.00% maximum over the term of the loan. The index is based on the London Interbank Offered Rate rounded to the nearest 0.125% with a margin of 2.250%. The monthly payment based on the ARM’s initial rate will be $1,243.69. The payment after the first adjustment period will be $1,597.71, and the payment at the maximum adjustment will be $2,432.23.

An adjustable rate mortgage would be preferable to a fixed rate mortgage under certain conditions. It is preferable if you anticipate that interest rates will decrease or stay...