In a 5/1 “hybrid” adjustable-rate mortgage (ARM), the initial interest rate is fixed for 5 years, then is adjusted annually. (You usually pay “points” up front at closing in exchange for the “rate lock” for the first 5 years.) Suppose that you buy a house with a $ 340000, 30 year mortgage with a 5/1 ARM with initial rate of 4.5%; and suppose that five years later, the interest rate goes up to 8.9%.
Use the Bankrate amortization schedule online to determine what your monthly payment was, originally, at 4.5%? Monthly Payment =
What is your new payment? (Careful: the amount of the loan is no longer $ 340000 and you only have 25 years to pay it off.) New Monthly Payment =