Unaffordable Payments (7e)

Trading a Payment Subsidy For a Share of Appreciation

Who This Calculator is For: Lenders who have ARM borrowers who are facing rate resets they can't afford, who
may want to offer a payment subsidy in exchange for a share of the future appreciation in the borrower's house.

What This Calculator Does: This calculator compares the present value of a share of appreciation in
the borrower's house with that of the subsidy paid [to] the borrower, over the same time horizon.

General Information
  Current Value of House (e.g. 225000)
  Property Appreciation Rates Beginning with Next Rate Adjustment: ( Replace the rates shown with yours )
  Yr 1  Yr 2  Yr 3  Yr 4  Yr 5  
  Yr 6  Yr 7  Yr 8  Yr 9  Yr 10
  Lender's Share of Appreciation (as a percent) (e.g. 75)
  Discount Rate (e.g. 6)
Basic Loan Information Existing ARM
  Existing Loan Balance on ARM
  Current Interest Rate on ARM (e.g. 5.50)
  Current Monthly Payment (e.g. 1200)
  Remaining Term (in months) (e.g. 326)
  Borrower's Affordable Payment: ( Replace payments shown with yours )
  Yr 1  Yr 2  Yr 3  Yr 4  Yr 5  
  Yr 6  Yr 7  Yr 8  Yr 9  Yr 10
Interest Rate Index
  Current Value of ARM Interest Rate Index  ( e.g. 5.50 )
  Margin That is Added to Interest Rate Index  (e.g. 2.75)
Next Rate Adjustment
  Number of Months to Next Rate Adjustment  (e.g. 8)
  Maximum Interest Rate Change on Next Rate Adjustment  (e.g. 2.0)
Subsequent Rate Adjustments
  Duration, in Months, Between Subsequent Rate Adjustments  (e.g. 6)
  Maximum Interest Rate Change on Subsequent Rate Adjustments  (e.g. 1.0)
Maximum / Minimum Rates
  Maximum Interest Rate Over Life of Mortgage  (e.g. 12.5)


This is your marginal tax rate, the rate at which each additional dollar of income will be taxed. If you pay only Federal income taxes, it is the highest tax bracket you used when you calculated your taxes. Federal tax brackets currently are: 10%, 15%, 25%, 28%, 33%, and 35%. If you also pay state and/or local income taxes, these marginal rates can be added to the Federal rate. For example, if you had to pay 25% to the IRS and 5% to the state of Pennsylvania, your tax bracket is 30%. To perform a "pre-tax" analysis enter zero (0) as the tax rate. Select the specific index used by your ARM from the ARM disclosure form. To find its current value, see the sources in Adjustable Rate Mortgage Indexes. Slide mouse over yellow box at beginning of line to close pop-up. The amount that is added to the index value on a rate adjustment date. It is shown in the ARM disclosure form. Begin with the month in which the first payment is due. This is the number of months until the first rate adjustment. This is the maximum amount that the interest rate can change on the first rate adjustment. ARMs that have initial rate periods of 5 years or longer often have larger adjustment caps on the first rate adjustment than on subsequent adjustments. After the initial rate period, the rate on most ARMs changes every year, every 6 months, or every month. This affects the relative cost of ARMs and FRMs because ARMs tend to have lower costs in the early years. Down payment as a percent of sale price or property value, whichever is lower. This affects the relative cost of ARMs and FRMs because mortgage insurance premiums are higher on some ARMs. Any number up to 10 will be assumed to be a percent of the loan amount. Any number above 10 will be treated as a dollar amount. You can safely leave out any expenses expressed as a percent of the loan which are the same for the FRM and ARM, such as title insurance or transaction taxes. If the FRM and ARM loan amounts are the same, you can also leave out any dollar expenses which are the same for both mortgages, such as charges by escrow agents for closing services. For further information, read "How to Shop Settlement Costs". (Click on link at bottom of page) This affects the after-tax interest cost because on a purchase transaction points are fully deductible in the first year whereas on a refinance the deduction must be spread over the life of the loan, with the remaining portion of the deduction taken in the year the loan is paid in full. Given the down payment, term and mortgage type you have selected, the numbers shown are typical annual premium rates for "monthly premium plans" that involve no upfront premium. You can override these numbers if you are quoted different rates for monthly premium plans.