Assume you have decided to buy a new house in Malibu that costs $922,000.
 

Now, let's think about Mortgage B, a 30-year adjustable-rate mortgage with no points. The interest rate offered is 5% and it resets after year 2 at 100 basis points over the 3-year Treasury.  The annual rate increase is capped at 150 bps.

a) What is the monthly payment?
b) How much do you owe on this mortgage on the two-year anniversary?
c) On the second anniversary, the 3-year Treasury is trading at 5%.  What is your new mortgage interest rate in %?
d) what is your new payment after the interest rate resets?

Answer rating: 100% (QA)

a To calculate the monthly payment for Mortgage B we can use the formula P Lc1 cn1 cn 1 Where P is t... View the full answer