Question

Jacey obtains a 30-year 6/2 ARM at 4% with a 2/6 cap structure in the amount of $224,500. What is the monthly payment during the initial period?

Answer 1

In this case we have an ARM fixed for 6 years and adjust after the initial first 6 years every 2 years after. The basic idea behind a ARM is that the interest changes periodically, but since our ARM is fixed for 6 years, our going to calculate the monthly payment during the initial period using the formula:
`m= (P( (r)/(12)) )/(1-(1+ (r)/(12))^(-12t) )`
where

`m` is the monthly payment

`P` is the amount

`r` is the interest rate in decimal form

`t` is the number years

First we need to convert our interest rate of 4% to decimal form by dividing it by 100%:

`(4)/(100) =0.04`
We also know from our question that
`P=224500` and
`t=30`, so lets replace those values into our formula to find the monthly payment:

`m= (224500( (0.04)/(12)) )/(1-(1+ (0.04)/(12))^(-(12)(30)) )`

`m=1071.80`

We can conclude that the monthly payment during the initial period is $1071.58