Question

Aimee and Ben are purchasing a condominium and are financing $160,000. The mortgage is a 20 year 3/1 ARM with a cap structure of 1.5/10. What will their payments be for the first 3 years?

Answer 1

$1169.45

Explanation:

Using the formula:

`P = L \Big( (c(1+c)^n)/((1+c^n) -1) \Big)`

where;

Loan amount L = 160000

number of months (n) = 20 × 12 = 240

Lets assume that the interest rate per month c = 6.25% since it is not given.

i.e. (6.25/( 100*12) ) = 5.208 × 10⁻³

∴

`P = 160000 * (5.208 *10^(-3) (1+5.208 *10^(-3))^(240))/((1+5.208 *10^(-3))^(240)-1)`

P = $1169.45