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Author: timk777 One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 126958  
Subject: Number Crunching Date: 2/26/2013 6:33 PM
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I hope this is the "right" board to ask this question. I'm trying to determine how long a 3-year ARM will beat a 5-year ARM if the rate changes 1% after 3 years.

Loan A: $3MM -- 20 yr. amortization -- 3.2% first 3 years -- then resets for another 3 years, etc. until maturity. (Reset = prime + 0.35%)

Let's say, after 3 years, the rate moves to 4.2%.

Loan B: $3MM -- 20 yr. amortization -- 3.6% first 5 years -- then resets for another 5 years, etc. until maturity. (Reset = prime + 0.55%)

Let's say, after 5 years, the rate moves to 4.6%.

Then, after year 6 on Loan A, the rate also moves to 4.6%.

Which loan is better for the first six years? Hoping to repay or refinance after six years.

Thanks in advance for your help,
Tim
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