The LOAN Procedure

In addition to specifying the basic loan parameters, you need to specify the terms of the rate adjustments for an adjustable rate loan. There are many ways of stating the rate adjustment terms, and PROC LOAN facilitates all of them. For details, see the section Rate Adjustment Terms Options.

Assume that you have an alternative to finance the $100,000 investment with a 15-year adjustable rate loan with an initial annual nominal interest rate of 5.5%. The rate adjustment terms specify a 0.5% annual cap, a 2.5% life cap, and a rate adjustment every 12 months. Annual cap refers to the maximum increase in interest rate per adjustment period, and life cap refers to the maximum increase over the life of the loan. The following ARM statement specifies this adjustable rate loan by assuming the interest rate adjustments will always increase by the maximum allowed by the terms of the loan. These assumptions are specified by the WORSTCASE and CAPS= options, as shown in the following statements:

proc loan start=1998:12;
   arm amount=100000 rate=5.5 life=180 worstcase
       caps=(0.5, 2.5)
       label='BANK3, Adjustable Rate';
run;