Adam is approved for a 25-year 6/1 ARM at 4.35% with a 4/14 cap structure in the amount of $308,400. Assuming Adam is charged the maximum interest rate, what will his monthly payments be at the beginning of the seventh year?

$1,431.85

$1,688.04

$2,080.06

$2,291.86

Question

Adam is approved for a 25-year 6/1 ARM at 4.35% with a 4/14 cap structure in the amount of $308,400. Assuming Adam is charged the maximum interest rate, what will his monthly payments be at the beginning of the seventh year?

 $1,431.85

 $1,688.04

 $2,080.06

 $2,291.86

anonymous · Answer

I think first  I gotta find the maximum interest rate on the loan .

anonymous · Answer

4.35 % + the cap structure which is 14

amistre64 · Answer

the interest is held fixed for 6 years, then goes up 4 points each year (not to exceed 14 points in all)

amistre64 · Answer

determine the payments for the first 6 years to define the balance after 6 years

then restructure the loan for the remaining time at +4 points interest

amistre64 · Answer

payments for a 25yr, fixed loan of .0435 will give us the initial period payments amounts

Po = 308400k^(12*25)(1-k)/(1-k^(12*25)), k=1+.0435/12

B6 = 308400k^(12*6)-Po(1-k^(12*6))/(1-k), k=1+.0435/12

use that for the remaining time (25-6) years at .0835

P1 = B6 k^(12*19)(1-k^(12*19))\(1-k), k=1+.0835/12

amistre64 · Answer

Po = 1688.04

B6 = 261 595

i see i typoed P1;  that last fraction is flipped the wring way :)

P1 = 261595 k^(12*19)(1-k)/(1-k^(12*19)), k=1+.0835/12
     = 2292 or so

anonymous · Answer

@amistre64  Thank you alot