You want to buy a house and take out a mortgage for $250,000. The only mortgage that you can afford is a 30 year ARM that has a fixed rate of 3% annual compounded monthly for the first 3 years and then can adjust every year after that. Against the advice of a wise EMIS professor that you once had, you decided to take the mortgage.
a) What is the monthly payment for his home mortgage for the first 3 years?
After you make the 36th payment, the interest rate adjusts to 5% annual compounded monthly.
b) What is the new monthly payment?
After you make the next 12 payments, the interest rate increases to 7% annual compounded monthly.
c) What is the new monthly payment?
You make the next 12 payments and the interest rate is about to adjust again. You decide that your old EMIS professor was right all along and you take out a new loan with a fixed interest rate of 4.5% annual compounded monthly for a term of 20 years.
d) What is the total amount of interest that you will pay for all of the mortgages (ARM plus fixed rate loans)?