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#2141691 - 08/11/17 10:50 AM Projected Payments - ARM
JPC Offline
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Registered: 10/22/15
Posts: 663
My company is in the process of offering their first ARM product. I am trying to verify the accuracy of the LE. One thing I noticed with the model form in Appendix H is that it doesn't seem to account for any amortization and corresponding adjustment of the payment amount based on that. Am I right in assuming that amortization doesn't have an impact on the Min. & Max. amounts that are shown in the Projected Payments table? For example, let's say we have a 5/1 ARM. The "Year 6" column will have a minimum and maximum projected payment, as will the Year 7 column. Let's say the minimum interest rate is the same in both Year 6 and Year 7. Technically, when the payment analysis is done for Year 7, it will be based on the outstanding principle at that time, which would have been less than the outstanding principal balance used in the Year 6 analysis because the loan will have paid down some. This should result in a lower payment in Year 7 if interest rates remained the same. However, it doesn't seem like the LE requires such an analysis.

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#2141705 - 08/11/17 11:43 AM Re: Projected Payments - ARM [Re: JPC]
rlcarey Offline
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Registered: 07/16/01
Posts: 64600
Loc: Galveston, TX
Technically, when the payment analysis is done for Year 7, it will be based on the outstanding principle at that time, which would have been less than the outstanding principal balance used in the Year 6 analysis because the loan will have paid down some.

and the amortization period will be a year less - payment remains the same.
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#2141731 - 08/11/17 01:10 PM Re: Projected Payments - ARM [Re: JPC]
JPC Offline
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Registered: 10/22/15
Posts: 663
Doy!

Got ya. Guess going from a fixed to and adjustable rate just kept standing out to me and then thinking that has to be adjusted to account for the amortization. Though, I guess even with that the payment calculation would be similar to what you would do in the initial year anyway.

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