Question

What is the new payment on a 25-year, monthly payment, adjustable-rate mortgage after five years if the interest rate changes from 9.75% to 8.75% The original amount of the loan was $125,000, the original term was 25 years, and there are 20 years left on the mortgage. Round your answera. $1,050
b. $1,150
c. $1,000
d. $1,100

Answer 1

Answer:

Option A is correct

Explanation:

R = [P*(r/12)]/[1-(12/(12+r))]^(12*r)

t = time = 25 years

P = initial principal = 125000

R = initial interest rate = 9.75

So therefore:

R = 125000* (0.0975/12)/[ 1 - (12/(12+0.975)]^(300)

R = 1015.625/(1-0.088)

R = $1113.62 per month

Compounding R for the first five years = 6205.4

Balance = 125000 - 6205.4 = 118792.7

So therefore with the new rate = 8.75

New P = 118792.7

t = 20

R = 118792.7*(0.0875/12)/[1- (12/(12+0.0875))^(240)]

R = 866.197/0.825

R = 1049.93 = $1050