The Robinson family is considering purchasing a house in the Ottawa area for $650,000. They wish to amortize the loan over 25 years, and pay for the mortgage through monthly payments over 3 years at a current interest rate of 5.8% compounded monthly. They family is calculating the change in interest rates if at the end of the third year interest rates change from 5.8% to 6.1% compounded monthly. Determine the value of the current payment and the new payment after year 3.

Question

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The correct answer is determined by calculating the monthly mortgage payments using the formula for a fixed-rate mortgage. Initially, the payment is calculated based on a $650,000 loan, a 25-year amortization period, and a 5.8% annual interest rate compounded monthly. After 3 years, the remaining balance is recalculated, and the new payment is determined based on the remaining balance, the remaining term (22 years), and the new interest rate of 6.1%. The option that accurately reflects these calculations is the correct one.

The Robinson Family Is Considering Purchasing a House in the Ottawa