Use your calculator to determine (1) the current mortgage payment (2) the total

Question

Use your calculator to determine (1) the current mortgage payment (2) the total interest paid, (3) the payment after the first adjustment and (4) the maximum payment for the following $193,300, 30-year mortgage. Assume that the initial interest rate is 6.50 percent.

a. Annually adjustable, 1 percent per year, 5 percent lifetime cap. Assume also that rates increase at least 1 percent per year until they reach the lifetime cap and rates never again drop below the lifetime cap for the term of the mortgage.

Explanation / Answer

Loan Amount $193,300 No of Yrs 30 Initial interest rate 6.50% Interest rate not to exceed 11.50% (6.50%+5%) Payment in year 1 Using PMT function in excel, we get ($14,802.42) PMT(6.5%,30,193300) Year 2, Interest rate will be 7.50% Using PMT function in excel, we get ($16,335.45) PMT(7.5%,29,191062.08) Year 3, Interest rate will be 8.50% Using PMT function in excel, we get ($17,892.12) PMT(8.5%,28,189056.29) Year 4, Interest rate will be 9.50% Using PMT function in excel, we get ($19,466.44) PMT(9.5%,27,187233.95) Year 5, Interest rate will be 10.50% ($21,053.25) PMT(10.5%,26,185554.74) Using PMT function in excel, we get Year 6, Interest rate will be 11.50% ($22,648.16) PMT(11.5%,25,183984.73) Using PMT function in excel, we get Years Beginning Loan Balance Interest Paid Principal Total Payments Ending Balance 1 $193,300 $12,564.5 $2,237.92 $14,802.42 $191,062.08 2 $191,062.08 $14,329.7 $2,005.79 $16,335.45 $189,056.29 3 $189,056.29 $16,069.8 $1,822.34 $17,892.12 $187,233.95 4 $187,233.95 $17,787.2 $1,679.21 $19,466.44 $185,554.74 5 $185,554.74 $19,483.2 $1,570.00 $21,053.25 $183,984.73 6 $183,984.73 $21,158.24 $1,489.92 $22,648.16 $182,494.82 7 $182,494.82 $20,986.90 $1,661.26 $22,648.16 $180,833.56 8 $180,833.56 $20,795.86 $1,852.30 $22,648.16 $178,981.26 9 $178,981.26 $20,582.84 $2,065.32 $22,648.16 $176,915.95 10 $176,915.95 $20,345.33 $2,302.83 $22,648.16 $174,613.12 11 $174,613.12 $20,080.51 $2,567.65 $22,648.16 $172,045.47 12 $172,045.47 $19,785.23 $2,862.93 $22,648.16 $169,182.54 13 $169,182.54 $19,455.99 $3,192.17 $22,648.16 $165,990.37 14 $165,990.37 $19,088.89 $3,559.27 $22,648.16 $162,431.10 15 $162,431.10 $18,679.58 $3,968.58 $22,648.16 $158,462.52 16 $158,462.52 $18,223.19 $4,424.97 $22,648.16 $154,037.55 17 $154,037.55 $17,714.32 $4,933.84 $22,648.16 $149,103.71 18 $149,103.71 $17,146.93 $5,501.23 $22,648.16 $143,602.47 19 $143,602.47 $16,514.28 $6,133.88 $22,648.16 $137,468.60 20 $137,468.60 $15,808.89 $6,839.27 $22,648.16 $130,629.32 21 $130,629.32 $15,022.37 $7,625.79 $22,648.16 $123,003.54 22 $123,003.54 $14,145.41 $8,502.75 $22,648.16 $114,500.78 23 $114,500.78 $13,167.59 $9,480.57 $22,648.16 $105,020.21 24 $105,020.21 $12,077.32 $10,570.84 $22,648.16 $94,449.38 25 $94,449.38 $10,861.68 $11,786.48 $22,648.16 $82,662.90 26 $82,662.90 $9,506.23 $13,141.93 $22,648.16 $69,520.97 27 $69,520.97 $7,994.91 $14,653.25 $22,648.16 $54,867.72 28 $54,867.72 $6,309.79 $16,338.37 $22,648.16 $38,529.35 29 $38,529.35 $4,430.87 $18,217.29 $22,648.16 $20,312.06 30 $20,312.06 $2,335.89 $20,312.27 $22,648.16 ($0.21) $462,453.5 $193,300.2 $655,753.7

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