Question

A mortgage broker is offering a 25-year $286,000 mortgage with a teaser rate. In the first...

A mortgage broker is offering a 25-year $286,000 mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 5.2 percent APR interest rate. After the second year, the mortgage interest rate charged increases to 8.2 percent APR.

1)What are the monthly payments in the first two years?

2)What are the monthly payments after the second year?

Homework Answers

Answer #1

1)

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]
C = Cash flow per period
i = interest rate
n = number of payments
286000= Cash Flow*((1-(1+ 5.2/1200)^(-25*12))/(5.2/1200))
Cash Flow = 1705.42

2)

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]
C = Cash flow per period
i = interest rate
n = number of payments
PV= 1705.42*((1-(1+ 5.2/1200)^(-23*12))/(5.2/1200))
PV = 274237.92
PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]
C = Cash flow per period
i = interest rate
n = number of payments
274237.92= Cash Flow*((1-(1+ 8.2/1200)^(-23*12))/(8.2/1200))
Cash Flow = 2211.56
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