Different types of mortgages: Suppose you are buying a house and have to borrow $200,000 by taking out one of the following mortgages.

a) A fixed rate mortgage with 30-year-term and with mortgage rate of 7.5%. What would be the monthly payment?

b) An adjustable-rate mortgage with 30-year-term and the initial mortgage rate of 7.5%. However after one year (12 months), the rate will increase to 8.5%. What will be the monthly payment after one year?

c) An interest-only and fixed-rate mortgage with 30-year-term and the mortgage rate of 7.5%. The lockout period is of 5 years, that is, for the first 60 months, the monthly mortgage payment is only the monthly interest. After 60 months, the mortgage becomes a fixed rate mortgage at the initially quoted mortgage rate. What will be the monthly payment after 5 years?

Answer rating: 100% (QA)

To calculate the monthly payment for each type of mortgage we can use the standard formula for mortg... View the full answer