3. Consider a hybrid mortgage for which the interest rate is fixed for the first three...

3. Consider a hybrid mortgage for which the interest rate is fixed for the first three years, and then the converts to an ARM that adjusts annually. The loan amount is $75,000 with an initial interest rate of four percent (4%). This is a 30-year loan, and is fully amortizing.

a. What is the amount of the monthly payments for principal and interest for the first three years?

b. What will be the loan balance after three years?

c. What would new payments be beginning in year 4 if the interest rate increased to five percent (5%) and the loan continued to be fully amortizing?

d. In (a) what would monthly payments be during years 1-3 if the payments were only for interest, and there was no amortization? What would payments be beginning in year 4 if interest rates increased to 5%, and the loan became fully amortizing?

Expert Solution

jeff jeffy answered 1 year ago

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