Question

Bart and April are purchasing a house with a 15-year, 2/1 ARM for $315,000 at 5.85% with a 2/8 cap structure. What will the difference in payments be from year 2 to year 3?

$309.69

$595.18

$333.68

$86.56

Answer 1

define the payments for the first 2 years based on a fixed rate, 15 year mortgage

Answer 2

find the balance remaining after 2 years to calculate the payments again, based on a fixed mortgage of 13 years at an extra 2% interest

Answer 3

what formulations do you have that you think would help out with these processes?

Answer 4

like i have no idea where to even begin...

Answer 5

start by calculating the payments for a fixed, 15 year term

Answer 6

\[k=1+\frac{.0585}{12}\]
\[P=Bk^{12*15}\frac{1-k^{12*15}}{1-k}\]

Answer 7

ive got my last part there flipped

Answer 8

\[P=Bk^{12*15}\frac{1-k}{1-k^{12*15}}\]

Answer 9

alright what is "B" how do i calculate that?

Answer 10

next, determine that balance remaining after 2 years to recalculate the payments with

Answer 11

B is the initial balance ... the amount of the loan to pay off

Answer 12

the initial balance after 2 years .. is the balance remaining after 2 years:\[B_2=Bk^{2*12}-P(\frac{1-k^{2*12}}{1-k})\]
use that to recalculate the payments and compare the results

Answer 13

http://openstudy.com/users/kenbaby#/updates/51d83b01e4b015ed74215377

Answer 14

thanks man.. its just so confusing to me.. idk how im going to do all this work lol

Answer 15

excel helps, but if by hand .. breaking it apart into smaller bits is useful

Answer 16

thankss

Answer 17

youre welcome

Answer 18

you might want to look thru kens asked questions to see what has been answered already since you both appear to be taking the same material