Question

In: Finance

A mortgage broker is offering a $281,000 20-year mortgage with a teaser rate. In the first...

A mortgage broker is offering a $281,000 20-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 4.7 percent APR interest rate. After the second year, the mortgage interest rate charged increases to 7.7 percent APR.

What are the monthly payments in the first two years? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Monthly payment

$

What are the monthly payments after the second year? (Round the dollar amounts to the nearest cent, but do not round other values in your interim calculations. Round your final answer to 2 decimal places.)

Monthly payment

$

References

Expert Solution

A. Monthly rate = 4.7%/12 = 0.39166666%

n = no. of months = 12*20 = 240

Monthly payment in first two years = $281,000 / PVAF(0.39166666% , 240 months) = $1808.22

B.

Repayment Schedule during first 2 years

Period	Rate p.m	OPENING	INTEREST	PRINCIPAL	INSTM	CLOSING
1	0.0039167	281000.00	1100.58	707.64	1808.22	280292.36
2	0.0039167	280292.36	1097.81	710.41	1808.22	279581.95
3	0.0039167	279581.95	1095.03	713.19	1808.22	278868.75
4	0.0039167	278868.75	1092.24	715.99	1808.22	278152.76
5	0.0039167	278152.76	1089.43	718.79	1808.22	277433.97
6	0.0039167	277433.97	1086.62	721.61	1808.22	276712.36
7	0.0039167	276712.36	1083.79	724.43	1808.22	275987.93
8	0.0039167	275987.93	1080.95	727.27	1808.22	275260.66
9	0.0039167	275260.66	1078.10	730.12	1808.22	274530.54
10	0.0039167	274530.54	1075.24	732.98	1808.22	273797.56
11	0.0039167	273797.56	1072.37	735.85	1808.22	273061.71
12	0.0039167	273061.71	1069.49	738.73	1808.22	272322.98
13	0.0039167	272322.98	1066.60	741.63	1808.22	271581.35
14	0.0039167	271581.35	1063.69	744.53	1808.22	270836.82
15	0.0039167	270836.82	1060.78	747.45	1808.22	270089.37
16	0.0039167	270089.37	1057.85	750.37	1808.22	269339.00
17	0.0039167	269339.00	1054.91	753.31	1808.22	268585.69
18	0.0039167	268585.69	1051.96	756.26	1808.22	267829.42
19	0.0039167	267829.42	1049.00	759.23	1808.22	267070.20
20	0.0039167	267070.20	1046.02	762.20	1808.22	266308.00
21	0.0039167	266308.00	1043.04	765.18	1808.22	265542.82
22	0.0039167	265542.82	1040.04	768.18	1808.22	264774.63
23	0.0039167	264774.63	1037.03	771.19	1808.22	264003.44
24	0.0039167	264003.44	1034.01	774.21	1808.22	263229.23

After 2 years remaining principal to be paid as shown above = $263229.23

New month rate = 7.7%/12 = 0.6416666%

Now monthly payment = $263229.23 / PVAF(0.6416666%, 216 months) = $2255.63

jeff jeffy answered 2 years ago

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