1. value: 2.50 points Problem 5-55 Teaser Rate Mortgage (LG9) A mortgage broker

Question

1. value: 2.50 points Problem 5-55 Teaser Rate Mortgage (LG9) A mortgage broker is offering a $186,900 30-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 4.3 percent APR interest rate. After the second year, the mortgage interest rate charged increases to 7.3 percent APR What are the monthly payments in the first two years? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Monthly payment S 1113 What are the monthly payments after the second year? (Round the dollar amounts to the nearest cent but do not round other values in your interim calculations. Round your final answer to 2 decimal places.) Monthly payment

Explanation / Answer

Monthly Payment can be calculated using PMT function on a calculator or excel

For the first two years, monthly payment = PMT(rate = 4.3%/12, nper = 30*12, pv = 186900, fv = 0, 0) = $924.91

Now, over the first two periods, principal paid can be calculated using CUMPRINC function

CUMPRINC(rate = 4.3%/12, nper = 360, pv = 186900, 1, 2*12, 0) = $6,383.69

Hence, outstanding loan amount after two years = 186,900 - 6,383.69 = 180,516.30

Monthly Payment = PMT(rate = 7.3%/12, nper = 28*12, pv = 180516.3, fv = 0, 0) = $1,262.69

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