Final answer:
The increase in the monthly payment for an adjustable-rate 30-year mortgage starting at 5 percent and increasing to 7 percent is $256.96.
Step-by-step explanation:
An adjustable-rate 30-year mortgage for $200,000 starting at 5 percent and increasing to 7 percent would result in an increase in the monthly payment. To calculate the amount of increase, we need to find the difference between the payments at 5 percent and 7 percent interest rates.
First, we calculate the monthly payment at 5 percent interest rate using the formula:
M = P * (r / (1 - (1 + r)^(-n))), where M is the monthly payment, P is the loan amount, r is the monthly interest rate, and n is the number of months in the loan term.
Substituting the values, we get M = 200,000 * (0.05 / (1 - (1 + 0.05)^(-360))) = $1,073.64.
Next, we calculate the monthly payment at 7 percent interest rate using the same formula:
M = 200,000 * (0.07 / (1 - (1 + 0.07)^(-360))) = $1,330.60.
The increase in the monthly payment is the difference between the two amounts: $1,330.60 - $1,073.64 = $256.96.