Question

Suppose your mortgage is $55,400 for 25 years. The index rate is 7.5% and the margin is 2.5%. After three years, the Treasury index decreases to 6.5%. Using the adjusted balance of $53,896.88, find the new monthly payment.

Answer 1

New interest rate = 6.5% +2.5% = 9%

Remaining period = 25-3 = 22 years

Monthly payment	=	[P × R × (1+R)^N ] / [(1+R)^N -1]
Using the formula:
Loan amount	P	$                                                            53,897
Rate of interest per period:
Annual rate of interest		9.000%
Frequency of payment	=	Once in 1 month period
Numer of payments in a year	=	12/1 =	12
Rate of interest per period	R	0.09 /12 =	0.7500%
Total number of payments:
Frequency of payment	=	Once in 1 month period
Number of years of loan repayment	=	22
Total number of payments	N	22 × 12 =	264
Period payment using the formula	=	[ 53896.88 × 0.0075 × (1+0.0075)^264] / [(1+0.0075 ^264 -1]
Monthly payment	=	$                                                            469.54

Monthly payment is $469.54