Question

Consider a 4-year, adjustable rate mortgage with an original balance of 15,000 and an initial interest rate of 5.9%. Suppose right after the month 6 payment has been made, the interest rate goes up by 0.8%. What is the new monthly payment in the following month?

Answer 1

Mortgage amount .initial balance.(P) =       15000  
          
Initial interest rate=       5.90%  
Monthly rate 5.9%/12=       0.004916666667  
no of months (n)=4*12=       48  
          
Monthly payment formula = P*i/(1-((1+i)^-n))          
15000*0.004916666667/(1-((1+0.004916666667)^-48))          
$351.59          
          
So Monthly payment is       $351.59  
          
          
Payment adjusted with ínterest rate calcultion:          
          
No of months remaining (n)= 48-6=       42  
Unpaid balance at month 6 formula (P)=monthly payment *(1-((1+i)^-n))/i          
351.59*(1-((1+0.00491666667)^-42))/0.00491666667          
13,312.42          
now balance (P)=   13,312.42      
Reset rate= 5.9%+0.8%=   6.70%      
Monthly rate (i)= 6.7%/12=   0.005583333333      
remaining months (n)=   42      
Monthly payment formula = P*i/(1-((1+i)^-n))          
13312.42*0.00558333333/(1-((1+0.005583333333)^-42))          
$356.46          
          
So Monthly payment adjusted is       $356.46  
          
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