Question

Charlie and Juana are purchasing a townhouse and finance $94,700 with a 15-year 5/2 ARM at 7.35% with a 2/10 cap structure. What will their payments be at the beginning of the sixth year assuming they are charged the maximum interest rate for that year?

$763.60

$677.53

$948.44

$869.83

Answer 1

@ganeshie8

Answer 2

@sydnoelle

Answer 3

u knw her ?

Answer 4

yes

Answer 5

Yes haha

Answer 6

okay :) both are asking similar questions lol

Answer 7

I have a few other questions too!

Answer 8

what does the given information tell us about refinancing times?

Answer 9

should i put my question up here. or open a new one @ganeshie8

Answer 10

in other words, what does the 5/2 ... 2/10 information tell us?

Answer 11

That's where I'm confused. What are the ARMS's and cap structures.

Answer 12

5/2 tells us about years .... 5 years at the intial rate, then it changes every 2 years

Answer 13

2/10 tells us about interest changes ... it changes by 2% each time, not to exceed a total of 10%

Answer 14

Oh okay

Answer 15

so, the first thing I would do is determine the payment for a 15 year fixed rate loan, and balance it out after 5 years to determine the refinanced payments for the balance over the remaining 10 years

Answer 16

How do I do that?

Answer 17

how do you determine the payments of a 15 year fixed rate loan? this should be in your material

Answer 18

I have my own formula that differs from the standard text formula

Answer 19

ill show you mine if you show me yours lol

Answer 20

\[M= P \times (i(1+i)^{nt} / (1+i) ^{nt} -1)\]

Answer 21

Could you show my the answer? My computer is about to die. I think the answer would be C = $948.44

Answer 22

By using that formula

Answer 23

I use a basic structure:\[A=Bk^n+P\frac{1-k^n}{1-k}\]
P is the payment we are looking for, B is the loan amount, A is what we oweand k and n are compounding factors; when A=0, the loan is paid off
\[0=Bk^n+P\frac{1-k^n}{1-k}\]solve for P
\[-Bk^n=P\frac{1-k^n}{1-k}\]
\[-Bk^n\frac{1-k}{1-k^n}=P\]
soo
\[P=-94700(1+.0735/12)^{12*15}(1-(1+.0735/12))/(1-(1+.0735/12)^{12*15})\]
which the wolf helps determine

Answer 24

what payment amount for the first 5 years do you get?

Answer 25

That isn't working in the calcualtor

Answer 26

the payments for the first 5 years are about: 869.83

http://www.wolframalpha.com/input/?i=-94700%28k%29%5E%7B12*15%7D%281-%28k%29%29%2F%281-%28k%29%5E%7B12*15%7D%29%3B+k%3D1%2B.0735%2F12

Answer 27

we can use this to find the amount owed after 5 years to refianance at and extra 2% interest for the remaining 10 years

Answer 28

Oh! Okay so now we do the interest rate 2% more?

Answer 29

lets find the balance after 5 years that needs to be refinanced first
\[A=94700k^{12*5}-869.828\frac{1-k}{1-k^{12*5}};k=1+.0735/12\]

http://www.wolframalpha.com/input/?i=94700k%5E%7B12*5%7D-869.828%5Cfrac%7B1-k%7D%7B1-k%5E%7B12*5%7D%7D%3Bk%3D1%2B.0735%2F12

im getting a balance of 136,593 to refinance for .0935 over 10 years. whats the payment for that type of fixed loan?

Answer 30

$763.60?

Answer 31

is that a guess, or did your formula produce that?

Answer 32

I used the formula

Answer 33

then that should be it :)

Answer 34

Isn't your formula showing the same?

Answer 35

maybe ... maybe not lol i got a typo in mine and its showing 1756 :)

Answer 36

That is not even a choice

Answer 37

@ganeshie8 can you help me like you helped Syd

Answer 38

@amistre64 thats not an answer choice

Answer 39

ARMS are not great for reducing payments, and the starting payments are 870, im thinking the reading of the phrase "beginning of the 6th year" might refer to the original payments of 870 instead of the adjusted payments to be made during the year

Answer 40

ive dbl chked my thought process, its good.

ARMs refinance the remaining balance for the remianing time period at a new interest rate which is why they are not the best option for home buyers.

Answer 41

So what would the appropriate answer be?

Answer 42

134212 is the remaining balance to play with .... had my fraction flipped

Answer 43

im gonna wake up soon ...

\[A=94700(1+\frac{.0735}{12})^{12*5}-869.83\frac{1-(1+\frac{.0375}{12})^{12*5}}{1-(1+\frac{.0375}{12})}=$73,763.90\]
its these fat fingers on this tiny keyboard :)

Answer 44

http://www.wolframalpha.com/input/?i=73763.90k%5E%7B12*10%7D%5Cfrac%7B1-k%7D%7B1-k%5E%7B12*10%7D%7D%3Bk%3D1%2B.0935%2F12

refinanced with payments of 948 ...

Answer 45

which is what my gut was saying since ARMs tend to have higher payments as they move on :)

Answer 46

That was what I said in the beginning!

Answer 47

you said the 700 one lol

Answer 48

Scroll up to the very top

Answer 49

all the way up there? thats just torture

Answer 50

lol this question should not be given in exam :/

Answer 51

yes, thats the one you said to start with ;)