ou have a choice between a 30-year fixed rate loan at 65%and an adjustable rate
ID: 2596711 • Letter: O
Question
ou have a choice between a 30-year fixed rate loan at 65%and an adjustable rate e ARM during thefrst yearon a$300,000 loan Suppose that the ARM rate rises to 9 5% at aken the fixed rate loan? year rate of 4% the th dyear A pron Neglecting compounding and changes n pmopal, estimate your morety sangs w ately how m ch extra w you then be pay ngover what you w uld have padt you sald hat is the approximate monthly savings with the ARM during the rst year? (Round to the nearest dollar as needed ) pproximately how much extra will be paid per morth with the ARM during the third year? (Round to the nearest dollar as needed )Explanation / Answer
1) For The 6.5% fixed rate loan, the interest on the $300000 loan for the first year will be -
= $300000 * 6.5%
= $19500
with the 4% ARM, your first year interest will be -
= $300000 * 4%
= $12000
First Year Saving = $19500 - $12000 = $7500
Monthly Savings = $7500 / 12 = $625
2) By the third year when rate reach 9.5% the situation is reserved. the rate on the ARM is now 3% above the rate
on the fixed rate loan.
= $300000 * 3%
= $9000
Monthly Paying = $9000 / 12 = $750
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.