Question

Velida took out a 5/1 variable-rate mortgage for $150,000. The interest rate

for the first period was fixed at 5.25%, and the loan was amortized over 30

years. At the end of the initial loan period, the interest rate was 6.75%, plus a

1.5% margin. What was Velidas monthly mortgage payment during the initial

fixed-rate period?

Answer 1

Velidas monthly mortgage payment will be $828.31

Explanation:

From the information given:

The cost of mortgage = $150,000

Monthly interest rate = 5.25%/12= 0.0525/12 = 0.004375

Amortization period = (30 × 12) months = 360 months

The monthly mortgage payment can be determined by using the formula:

`E = (C * r)/(1 - ( 1+ r)^(-n))`

`E = (150000 * 0.004375)/(1 - ( 1+ 0.004375)^(-360))`

`E = (656.25)/(1 - ( 1.004375)^(-360))`

`E = (656.25)/(1 -0.20772)`

`E = (656.25)/(0.79228)`

E = $828.31