The following problem involves adjustable-rate mortgage. You will need a table of monthly payments.
-Harry has a 1-year ARM for $75,000 over a 25-year term. The margin is 2%, and the index rate starts out at 8.5% and increases to 10% at the first adjustment. The balance of principal at the end of
The first year is $74,113.56. If the monthly payment for the first year is $708.14, how much more will
His monthly payment be for the second year?

Question

Quizplus · Accepted Answer

The new interest rate for the second year is 10% (index rate) + 2% (margin) = 12%. Using the remaining principal balance of $74,113.56 and the new interest rate, the new monthly payment is calculated. The difference between the new monthly payment and the first year's payment of $708.14 is approximately $77.75.

The Following Problem Involves Adjustable-Rate Mortgage