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14 April, 06:26

What is the new payment on a 25-year, monthly payment, adjustable-rate mortgage after five years if the interest rate changes from 9.75% to 8.75% The original amount of the loan was $125,000, the original term was 25 years, and there are 20 years left on the mortgage. Round your answera. $1,050

b. $1,150

c. $1,000

d. $1,100

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  1. 14 April, 06:38
    0
    Option A is correct

    Explanation:

    R = [P * (r/12) ]/[1 - (12 / (12+r)) ]^ (12*r)

    t = time = 25 years

    P = initial principal = 125000

    R = initial interest rate = 9.75

    So therefore:

    R = 125000 * (0.0975/12) / [ 1 - (12 / (12+0.975) ]^ (300)

    R = 1015.625 / (1-0.088)

    R = $1113.62 per month

    Compounding R for the first five years = 6205.4

    Balance = 125000 - 6205.4 = 118792.7

    So therefore with the new rate = 8.75

    New P = 118792.7

    t = 20

    R = 118792.7 * (0.0875/12) / [1 - (12 / (12+0.0875)) ^ (240) ]

    R = 866.197/0.825

    R = 1049.93 = $1050
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