Question

George secured an adjustable-rate mortgage (ARM) loan to help finance the purchase of his home 5 years ago. The amount of the loan was $350,000 for a term of 30 years, with interest at the rate of 9%/year compounded monthly. Currently, the interest rate for his ARM is 3.5%/year compounded monthly, and George's monthly payments are due to be reset. What will be the new monthly payment

Answer 1

Answer:

$1,680

Explanation:

during the first 5 years, the monthly payment will = $2,816.18

I prepared an amortization schedule. After the 60th payment, the principal owed = $335,580

the new monthly payment considering that the interest rate fell significantly to 3.5% = $1,680

calculation to determine the monthly payment:

present value of the loan = monthly payment x PVIFA

monthly payment = present value / PVIFA

PVIFA, 0.29167%, 300 periods = 199.7501

monthly payment = $335,580 / 199.7501 = $1,680

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