You have are in the 5th year of a $300,000 5/1, 30 year ARM with caps...

You have are in the 5th year of a $300,000 5/1, 30 year ARM with caps of 3/2/5 and an initial (composite) rate of 4.5% (Index of 2.5% + margin of 2%). Your current monthly payments of P+I equal $1,520.06. By the end of Year 5, interest rates have increased substantially and the "index" is now at 6.5%. What will your new monthly payment be for Year 6. [Hint: find the loan principal amount then recast for remaining 25 years at new rate].

Expert Solution

Calculation of the loan principal amount at the end of 5 years -

Amortization table -

at the end of 5th year/60 months the principal value of loan = 273473.75

now interest rate has increase to 6.5% per year

revised rate of interest per month = 6.5%/12

= 0.54167%

New month installment from year 6 = outstanding loan amount at the beginning of year 6/PVIFA(0.54167%,300)

= 273473.75/148.1027

= 1846.514

Please check with your answer and let me know.

jeff jeffy answered 1 year ago

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