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5/1 Arm Mortgage Payment

Posted on 2011-09-03
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Last Modified: 2012-05-12

Can anyone find a reliable source or a know the formula to calculate the initial payment for a 5/1 arm
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Question by:Leo Torres
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19 Comments
 
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Expert Comment

by:nickg5
ID: 36480517
Before trying to locate an answer for you let me tell you my experiences with 5-1 arm.
I was wanting a mortgage on a home under $50,000.
All the 5-1 arm did, was to give me a specific low interest rate IF I paid the mortgage off in the first 5 years. After that, the interest rate went up for the rest of the 30 year mortgage.
The 5-1 arm did not affect my mortgage payment, except the interest rate was lower those first 5 years.

What priced house can I use, for your scenario?

$150,000?

And are you wanting a 30 year mortgage or 15 year?

Is this a conventional loan, or FHA, or HUD?
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Author Comment

by:Leo Torres
ID: 36480544

Conventional, 30 Years
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Expert Comment

by:nickg5
ID: 36480558
Here is an example from a site offering:
2.625% (3.054% APR) with an adjustable rate mortgage.

$200,000 loan amount, paying 1.75 points, with 30% equity on today’s rate
Over 5 years, a 5-year ARM at 2.625% could save you:

30-year fixed
3.99% (4.208% APR)
= $953 per month

5-year ARM
2.625% (3.054% APR)
= $803 per month





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LVL 8

Author Comment

by:Leo Torres
ID: 36480561
OK so where is the formula.. I need a formula for getting these calculations not the calculations ai can get that from the site
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Expert Comment

by:nickg5
ID: 36480564
5/1 ARM Fixed for 60 months, adjusts annually for the remaining term of the loan.

http://www.bankrate.com/calculators/mortgages/adjustable-rate-mortgage-arm-calculator.aspx?ec_id=m1024691
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LVL 25

Expert Comment

by:nickg5
ID: 36480572
Here's another one:
http://www.dinkytown.net/java/MortgageAdjustable.html


You know the loan amount, and you know the interest rate your bank is quoting you.
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Author Comment

by:Leo Torres
ID: 36480577
Are you reading my question.. I have the site I dont need site to calculate I Need the formula for the calculation
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LVL 25

Expert Comment

by:nickg5
ID: 36480582
I am asking on a real estate-mortgage forum.
I'll post the replies when I get one.
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Expert Comment

by:nickg5
ID: 36481161
With the complicated nature of these formulas, I am not sure if and when I'll get an answer from the mortgage forum.

http://www.mtgprofessor.com/formulas.htm

The above is not for 5-1 arms, but you can see the complexity of the formulas.

If I get a reply from a mortgage specialist, I'll post it here for you.
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Author Comment

by:Leo Torres
ID: 36481395
Ok these are better.. I had something similar to this and my client is getting something a bit different and the formula client gave is nothing like this one.. Guess I will see if your get something from your posting thank you
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LVL 25

Expert Comment

by:nickg5
ID: 36481410
Mortgage lenders, and borrowers, frequent this real estate forum, so there are people there who know. It is just a matter of waiting on a reply.
Things on there may be slow until after the Monday holiday.
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LVL 25

Expert Comment

by:nickg5
ID: 36484279
I got a couple replies and they are not encouraging:

1. (from a loan officer): Initial payment is determined by initial interest rate which is stated in your Note, it is not something that you calculate.

2. Do you use Excel?
Then use this function =pmt( ).
Instead, if you want an analytical function, I can provide you with one.

I've asked for the analytical function.......

so 2 replies after 18 lookers.
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LVL 25

Expert Comment

by:nickg5
ID: 36485213
I got you another reply.


"No, you need a calculator.
You assume that the mortgage is fixed for 30 years, at the initial level of the ARM.
 If you really want a formula:
 Mortgage = sum of the (product of the per period payment x discount factor) for payments 1 to 360 (12 per year for 30 years) where the discount factor is calculated from the ARM interest rate.
Therefore the per period payment is backed out of this."

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LVL 25

Expert Comment

by:nickg5
ID: 36485571
I can only go by what they tell me.

The guy says:

"The formula in the link is correct, and also applies to 5/1 ARMs for the first 5 years" (the formula from the link above)

That is about as much as I can find, at the moment.
Hopefully others can help you more.
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LVL 8

Author Comment

by:Leo Torres
ID: 36495578
Guys I am trying to program thisn in SQL
SET @I = (@IntinalRate/ 1200)
SET @N = @Term*12

SET @APR_CALC_AMT = @Principle 
SET @APR_CALC_FEES = @Principle*(@Points/100)
SET @one_mo_int = @APR_CALC_AMT*@I
SET @totprin = 0

--Points are fees on a loan ie.. 1 point --> .01 x 100,000 = 1,000
SET @new_loan_amt = (@APR_CALC_AMT + @APR_CALC_FEES+@one_mo_int)+((@Points/100)*@APR_CALC_AMT)


SET @PnI_pmt2      = (@Principle*@I*POWER((@I+1),@N))/((POWER((@I+1),@N)-1))

Open in new window

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Accepted Solution

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nickg5 earned 250 total points
ID: 36495905
Hopefully that works for you!
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LVL 8

Author Comment

by:Leo Torres
ID: 36497091
No Weird this is what They client is using in there own program that I have to move to SQL

arm_bal = new_loan_amt_orig - totprin
new_loan_amt_orig = new_loan_amt
new_loan_amt=( APR_CALC_AMT + APR_CALC_FEES + one_mo_int) + ((POINTS / 100)*APR_CALC_AMT)
one_mo_int=(APR_CALC_AMT * rate) / 1200
totprin = totprin + currentprin
currentprin = arm_pandi – currentint
arm_pandi = PnI_pmt
PnI_pmt =(new_loan_amt * (rate/1200))/(1-(1+(rate/1200))**(-Apr_term))
currentint = new_loan_amt*calcint
calcint = (rate / 1200)
fully_ndx_rate = Apr_margin + APR_index (both fields in the file)
adj_period = APR_TERM - new_arm_period

Not the same as I am seeing online
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Expert Comment

by:nickg5
ID: 36497164
I'll post the above and see what the loan officer says.
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Assisted Solution

by:Scott Madeira
Scott Madeira earned 250 total points
ID: 36509881
What you show in your sample SQL looks like you are allowing for rolling in of closing costs and points and fees to get a total loan value and then calculate the payment.  As far as semantics go, what you are calling principle in your SQL is really loan amount.  Principle is the portion of your payment each month that reduces your mortgage balance.  Principle plus interest would equal your monthly payment.  


Here is a page of mortgage formulas...

http://www.mtgprofessor.com/formulas.htm

For the 5/1 mortgage you would calculate your payment as if it were a 30-year conventional loan but use the 5-year fixed interest rate in your calculation.  The only thing the ARM does is give you a special / fixed interest rate for the first 5 years.  For the other 25 years of the loan the rate can change annually and usually has a cap on the rate that is ^% or 8% higher than the initial rate.  SO, if you get a 5/1 ARM at 4% the rate can adjust annually after the 5 years but it would never go above 10% regardless of market conditions in future years.
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