Question

You have taken out a $350,000, 3/1 ARM. The initial rate of 6.0% (annual) is locked in for three years. Calculate the outstanding balance on the loan after three years. The interest rate after the initial lock period is 6.5%. (Note: the term on this 3/1 ARM is 30 years.)

A) $336,294.25
B) $2,098.43
C) $347,901.57
D) $2,183.95

Answer 1

A) $336,294.25

Step-by-step explanation:

Loan = 350,000

Rate 6%

Years = 30

PMT = PMT(Rate/12, 30*12, -Loan)

PMT = PMT(6%/12, 360, -350,000)

PMT = $2,098.43

Loan balance after 3 years = 27 years left

Loan Balance = PV(Rate/12, 27*12, -PMT)

Loan Balance = PV(6%/12, 324, -2,098.43)

Loan Balance = $336,294.25