Question

A borrower takes out a 15-year adjustable rate mortgage loan for $550,000 with monthly payments. The first 5 years of the loan have a “teaser” rate of 4%, after that, the rate can reset with a 5% annual payment cap. On the reset date, the composite rate is 7%. What would the Year 6 (after 5 years; 10 years left) monthly payment be?

Answer 1

Calculating Monthly Payment with 4% rate,

Using TVM Calculation,

PMT = [PV = 550,000, FV = 0, N = 180, I = 0.04/12]

PMT = $4,068.28

Calculating Loan Balance after 5 years,,

Using TVM Calculation,

FV = [PV = 550,000, PMT = -4,068.28, N = 60, I = 0.04/12]

FV = $401,825.32

Calculating New Monthly Payment,

Using TVM Calculation,

PMT = [PV = 401,825.32, FV = 0, N = 120, I = 0.07/12]

PMT = $4,665.53

Monthly Payment = $4,665.53