Question

In: Finance

You do not need a date I gave you all the information you need. If you...

You do not need a date I gave you all the information you need. If you need a date use 1-1-18

Use your calculator to determine? (1) the current mortgage payment? (2) the total interest? paid, (3) the payment after the first adjustment and? (4) the maximum payment for each of the following ?$167,600?, ?30-year mortgages. Assume that the initial interest rate is 7.20 percent.

a. Annually? adjustable, 1 percent per? year, 5 percent lifetime cap. Assume also that rates increase at least 1 percent per year until they reach the lifetime cap and rates never again drop below the lifetime cap for the term of the mortgage.

b. Fixed for 3 years and then annually? adjustable, 2 percent per? year, 5 percent lifetime cap. Assume also that rates increase at least 2 percent per year until they reach the lifetime cap and rates never again drop below the lifetime cap for the term of the mortgage.

c. Fixed for 5 years then annually? adjustable, 2 percent per? year, 6 percent lifetime cap. Assume also that rates increase at least 2 percent per year until they reach the lifetime cap and rates never again drop below the lifetime cap for the term of the mortgage.

d. Fixed for 5 years and then adjustable every 5? years, 3 percent per? period, 6 percent lifetime cap. Assume also that rates increase at least 3 percent per year until they reach the lifetime cap and rates never again drop below the lifetime cap for the term of the mortgage.

Please answer the following questions for A, B, C and D

The current mortgage payment is ?$    ?(Round to the nearest? cent.)

The payment after the first adjustment is ?$ ?(Round to the nearest? cent.)

The maximum payment is ?$    ?(Round to the nearest? cent.)

The total interest paid for a ?$168,000 ?30-year mortgage is ?$    . ?(Round to the nearest? cent.

Solutions

Expert Solution

2)a)

2)a)
Year 0 1 2 3 4 5
Principal outstanding 167,600.00 n(for prior period)=12, I/Y=7.20%/12, PV=167,600, PMT=-1,137.65, CPT-->FV=165,962.06 n(for prior period)=12, I/Y=8.20%/12, PV=165,962.06, PMT=1,251.03, CPT-->FV=165,504.60 n(for prior period)=12, I/Y=9.20%/12, PV=165,504.60, PMT=1,366.16, CPT-->FV=163,190.58 n(for prior period)=12, I/Y=10.20%/12, PV=163,190.58, PMT=1,482.63, CPT-->FV=161,989.36 n(for prior period)=12, I/Y=11.20%/12, PV=161,989.36, PMT=1,600.07, CPT-->FV=160,875.23
Initial interest rate (I/Y) 7.20% 7.2%+1.0% = 8.2% 8.2%+1.0% = 9.2% 9.2%+1.0% = 10.2% 10.2%+1.0% = 11.2% 11.2%+1.0% = 12.2%
Number of payments made during the period before next reset (n) 12.00 12.00 12.00 12.00 12.00 300.00
Period remaining (months) (N) =30*12=360 360-12=348 348-12=336 336-12=324 324-12=312 312-12=300
Monthly payments (PMT) N=360, I/Y=7.20%/12, PV=167600,FV=0, CPT-->PMT=1,137.65 N=348, I/Y=8.20%/12, PV=165,962.06,FV=0,
CPT-->PMT=1,251.03
N=336, I/Y=9.20%/12, PV=165,504.60,FV=0,
CPT-->PMT=1,366.16
N=324, I/Y=10.20%/12, PV=163,190.58,FV=0,
CPT-->PMT=1,482.63
N=312, I/Y=11.20%/12, PV=161,989.36,FV=0,
CPT-->PMT=1,600.07
N=300, I/Y=12.20%/12, PV=160,875.23,FV=0,
CPT-->PMT=1,718.20
Total Payment made (PMT*number of periods for which that payment is made) =1137.65*12 = 13,651.79 1251.03*12 = 15,012.38 1366.16*12=16,393.95 1482.63*12 = 17,791.54 1600.07*12 = 19,200.89 1718.20*300 = 515,459.93


Steps for calculation:

  • Year 1: Calculate payment based on given formula
  • Year 2: calculate principal outstanding at the end of year 2 after 12 payments (n) have been made @ $1,137.65 per month. This is the principal amount we need to pay in future with 348 (N) months remaining. Now calculate monthly payments for year 2, with interest rate increased to 8.20%
  • Repeat the calculation for each of the years until year 5 when the interest rate becomes constant and therefore the monthly payment amount of $1,718.20 does not change anymore.
The current mortgage payment is $?. (monthly) 1,137.65
The payment after the first adjustment is $?. (monthly) 1,251.03
The maximum payment is ?$? (monthly) 1,718.20

The total interest paid for a $167,600?, ?30-year mortgage is $? Total amount paid over the life - Original Principal= (13651.79 +15012.38 +16393.95 +17791.54 +19200.89 +515459.93)-167600 = 597510.48-167600 = 429,910.48

Based on same method, all other parts have been calculated as follows:

2)b)
Year 0 to 2 3 4 5 Total payment made
Principal outstanding 167,600.00 162,311.40 160,879.02 159,772.53
Initial interest rate (I/Y) 7.20% 9.20% 11.20% 12.20%
Number of payments made during the period before next reset (n) 36.00 12.00 12.00 300.00
Period remaining (months) (N) 360.00 324.00 312.00 300.00
Monthly payments (PMT) 1,137.65 1,358.80 1,589.11 1,706.42
Total Payment made (PMT*number of periods for which that payment is made) 40,955.37 16,305.63 19,069.28 511,926.77 588,257.04
The current mortgage payment is $?. (monthly) 1,137.65
The payment after the first adjustment is $?. (monthly) 1,358.80
The maximum payment is ?$? (monthly) 1,706.42
The total interest paid for a $167,600?, ?30-year mortgage is $? 588257.04-167600 = 420657.04

2)C)

Year 0 to 5 6 7 8 Total payment made
Principal outstanding 167,600.00 158,097.13 156,389.68 155,025.54
Initial interest rate (I/Y) 7.20% 9.20% 11.20% 13.20%
Number of payments made during the period before next reset (n) 60.00 12.00 12.00 276.00
Period remaining (months) (N) 360.00 300.00 288.00 276.00
Monthly payments (PMT) 1,137.65 1,348.46 1,567.60 1,792.82
Total Payment made (PMT*number of periods for which that payment is made) 68,258.94 16,181.58 18,811.17 494,819.24 598,070.93
The current mortgage payment is $?. (monthly) 1,137.65
The payment after the first adjustment is $?. (monthly) 0.00
The maximum payment is ?$? (monthly) 0.00
The total interest paid for a $167,600?, ?30-year mortgage is $? 598070.93-167600 = 430470.93
2)d)
Year 0 to 5 6 to 10 11 to 30 Total payment made
Principal outstanding 167,600.00 158,097.13 149,132.66
Initial interest rate (I/Y) 7.20% 10.20% 13.20%
Number of payments made during the period before next reset (n) 60.00 60.00 240.00
Period remaining (months) (N) 360.00 300.00 240.00
Monthly payments (PMT) 1,137.65 1,458.98 1,768.49
Total Payment made (PMT*number of periods for which that payment is made) 68,258.94 87,538.76 424,438.44 580,236.14
The current mortgage payment is $?. (monthly) 1,137.65
The payment after the first adjustment is $?. (monthly) 1,458.98
The maximum payment is ?$? (monthly) 1,768.49
The total interest paid for a $167,600?, ?30-year mortgage is $? 579355.43-167600 = 411755.43

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