You have a choice between a 30 year fixed rate loan at 3 5 and an adjustable rate mortgage (ARM) with a first year rate of 2 Neglecting compounding and changes in principal, estimate your monthly savings with the ARM during the first year on a $225,000 loan Suppose that the ARM rate rises to 10 5 a...

For a fixed rate loan of principal 225000 and interest rate 35 th ...

You have a choice between a 30-year fixed rate loan at 3.5% and an adjustable rate mortgage

Question:

You have a choice between a 30-year fixed rate loan at 3.5% and an adjustable rate mortgage (ARM) with a first year rate of 2%. Neglecting and changes in principal, estimate your monthly savings with the ARM during the first year on a $225,000 loan. Suppose that the ARM rate rises to 10.5% 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? What is the approximate monthly savings with the ARM during the first year? (Round to the nearest dollar as needed.)
Compounding
Compounding is the process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will...