Question

A mortgage broker is offering a 20-year $275,000 mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 4.1 percent APR interest rate. After the second year, the mortgage interest rate charged increases to 7.1 percent APR. What are the monthly payments in the first two years? (Do not round intermediate calculations and round your final answer to 2 decimal places.) What are the monthly payments after the second year? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Answer 1

Annual APR = 4.10%
Monthly Rate = 4.1 /12 = 0.3417%
Loan amount					275000
Divide: Annuity PVF at 0.3417% for 240 periiods					163.5901
Monthly payment					1681.031
Monthly Payment for first 2 years					1681.03
Multiply: Annuity PVF at 0.3417% for 216 periods					152.5793
Loan amount outstanding					256490.4
Annual rate = 7.1%
Monthly rate = 7.1 /12 = 0.5917%
Divide: Annuity PVF at 0.5917% for 216 periods					121.7467
Monthly payment after two years					2106.75