You just took out a variable-rate mortgage on your new home. The mortgage value is $100,000, the term is 30 years, and initially the interest rate is 8%. The interest rate is fixed for 5 years, after which the time rate will be adjusted according to the prevailing rates. The latest rate can be exerted to your loan either by changing the amount payment or by changing the length of mortgage.
a) Supposing annual payments, what is the original annual mortgage payment?
b) Make an amortization schedule for the first 5 years. Then What is the mortgage balance after 5 years?
c) When the interest rate on mortgage changes to 9% after 5 years, then what will be the latest annual payment which keeps the similar termination time?
d) Under the interest change in part (c), what will be the new term if the payments remain the same?