Question

A borrower takes out a 15-year adjustable rate mortgage loan for $560,000 with monthly payments. The first 4 years of the loan have a “teaser” rate of 5%, after that, the rate can reset with a 5% annual payment cap. On the reset date, the composite rate is 9%. What would the Year 5 (after 4 years; 11 years left) monthly payment be?

Answer 1

Given

Monthly payment for the entire loan period:

Rate = 5%

Nper = 15

PV = 560000

Using Excel:

Monthly payment = pmt(5%/12,15*12,-560000)

                              = $4428.44

Loan balance at the end of the year 4:

Nper = 15-4 = 11

PV=pv(5%/12,11*12,-4428.44,0)

        = $448927.4952

Now,

Monthly payment at year 5:

Rate = 9%

Nper = 11

Pv= $448927.4952

Monthly payment = Pmt(9%/12,11*12,-448927.4952,0)

                              = -$5369.53