Final answer:
To find the monthly payments for the first three years of a mortgage with a principal of $350,000 and varying interest rates, the loan payment formula is applied. The monthly interest rates for the first year (5%), second year (6.5%), and third year (assuming 8.5%) are used with the principal to calculate payments, not including additional costs like insurance.
Step-by-step explanation:
To calculate the monthly payments for the first three years of a mortgage with a principal of $350,000 and varying interest rates, we must use the formula for the monthly payment of a fixed-rate amortizing loan:
P = [rPv] / [1 - (1 + r)^{-n}]
Where:
- P is the monthly payment
- r is the monthly interest rate (annual interest rate divided by 12)
- Pv is the present value, which is the principal amount
- n is the number of payments to be made
For the first year, the interest rate is 5%, for the second year, it's 6.5%, and for the third year let's assume it returns to the original contracted rate of 8.5%. Also, let's take note that the interest rate is compounded monthly.
First Year (5%):
r = 5% / 12 months = 0.004167 per month
Pv = $350,000
n = 30 * 12 (since it's a 30-year mortgage)
The calculation yields a monthly payment for the first year. Repeat this process with the rates for the second and third year.
Note: This calculation doesn't include considerations like property taxes, insurance, and mortgage insurance which could affect the actual monthly payment.