Question

A 30-year, $200,000 adjustable-rate mortgage starts out with the rate of 4%. The borrower makes only the required payments in the first year. If after one year the rate resets to 5.8%, what is the new required payment?

Answer 1

Step 1: Find the payment in first year

N = 30*12 = 360

I/Y = 4/12 = 0.3333333333

PV = 200,000

FV = 0

CPT PMT

PMT = -954.8305909

Step 2: Find the loan outstanding after one year with old rate

N = 360 -12 = 348

I/Y = 0.3333333333

PMT = -954.8305909

FV = 0

CPT PV

PV = 196,477.9271

Step 3: Now, let's calculate the Payment required with the new rate

N = 348

I/Y = 5.8/12 = 0.4833333333

PV = 196,477.9271

FV = 0

CPT PMT

PMT = -1,167.723599

$1,167.723599 is the new payment required.

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