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You have a choice between a 30-year fixed rate loan at 5.5 % and an adjustable...

You have a choice between a 30-year fixed rate loan at 5.5 % and an adjustable rate mortgage (ARM) with a first-year rate of 4 %. Neglecting compounding and changes in principle, estimate your monthly savings with the ARM during the first year on a $300,000 loan. Suppose that the ARM rate rises to 6 % at the start of the third year. Approximately how much extra will you then be paying over what you would have paid if you had taken the fixed rate loan?

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