Maximum annual rate

On floating rate loans, when a condition is breached such as amortization exceeding a certain amount of time or becoming negative, the payment is adjusted on the loan. For this course, the condition will be that negative amortization cannot occur.

The maximum interest rate is the point where the entire payment goes to the interest payment, and none is used to pay down the principal. The rate will increase over the term of the loan, but the lowest point will be in the first period.

Calculate the maximum rate with the formula: Payment Amount / Opening Balance. Remember, this is a periodic rate, which needs to be annualized!