The initial interest rate is 55 percent but the loan


Consider a 30-year, two-step mortgage for $335,000. The initial interest rate is 5.5 percent, but the loan contract calls for a rate adjustment at the end of year 5. The new rate will be 2 percentage points above the ten-year Treasury bond yield. The interest rate is capped at 5 percentage points above the initial interest rate. If the T-bond yield is 7.5 percent at the time of the adjustment, what will the payments be for the last 25 years of this loan?

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Financial Management: The initial interest rate is 55 percent but the loan
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