*IS THIS RIGHT ?

Aimee and Ben are purchasing a condominium and are financing $365,000. The mortgage is a 15-year 3/1 ARM at 6.25% with a cap structure of 1.5/8. What will their payments be for the first 3 years?

$3,488.13

$3,435.66

$3,129.59

$2,247.37
--------
M=B((i(1+i)^(n)(t)/((1+i)^(n)(t)-1))

M= 360,000((0.00522083333(1+0.00522083333)^(12)(15)/(0.00522083333+1)^(12)(15)-1)) ?

Question

*IS THIS RIGHT ?

Aimee and Ben are purchasing a condominium and are financing $365,000. The mortgage is a 15-year 3/1 ARM at 6.25% with a cap structure of 1.5/8. What will their payments be for the first 3 years?

 $3,488.13

 $3,435.66

 $3,129.59

 $2,247.37
--------
M=B((i(1+i)^(n)(t)/((1+i)^(n)(t)-1))

M= 360,000((0.00522083333(1+0.00522083333)^(12)(15)/(0.00522083333+1)^(12)(15)-1)) ?

phi · Answer

how did you get 0.00522083333 for i ?

phi · Answer

also, isn't it 365,000  (not 360,000) for B

anonymous · Answer

@phi 0.0625/12

phi · Answer

double check if you get  0.00522083333

anonymous · Answer

ok :c im lost

tkhunny · Answer

Let's just be clear what all this means.

"15-year"  This is the term  180 months
"3/1 ARM"  Guaranteed for 3 years and changes annually thereafter.
"cap structure of 1.5/8"  Can't change by more that 1.5% in any one year and never is allowed to exceed 8%.

In the first three years, we have a guarantee of 6.25%

We don't assume increases in interest for current calculations.  Actually, this would reduce the required payments.

What say you?  Are we on the same page?

tkhunny · Answer

If we use ONLY the original guaranteed rate, we have 6.25% for all 15 years.  $3,129.59
If we use annual maximum rates, from issue, we have 6.25 for 3 years, 7.75 in year 4, and 8.00 in all subsequent years.  $3,331.69

I'm not sure why I said this would reduce the required payment.  Higher interest, higher payment.  Simple.  Wrong word.