4. In 2006 Juan and Maria purchased a home for $250,000. They were offered a 30-

Question

4. In 2006 Juan and Maria purchased a home for $250,000. They were offered a 30-year loan by a mortgage broker for no money down, interest only for the first three years at 3%, then automatically converting to an amortizing loan at 2 points above the prime rate (the prime rate is now 5%). What was their initial monthly payment, and what did it become after the reset? "Please focus on the wording that is asking what was the initial monthly payment and what is it after the reset." Please answering using Financial calculator keys. State initial payment before and after reset clearly .

Explanation / Answer

since it was said interest only for first two years the monthly payment interest rate is 3%/12

=250,000*3%/12

=$625

after rest the monthly payment is find using pmt formuale

Total loan balance=(250,000*3%*3)+250,000=272,500

=pmt(rate,nper,pv,fv,type)

rate=7%

nper=(30-3)*12=324

pv=272,500

=PMT(7%/12,324,272,500,,0)

=$1874.3

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