Adjustable and Fixed Rate Mortgages
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Consider the following scenario:
John buys a house for $150,000 and takes out a five year adjustable rate mortgage with a beginning rate of 6%. He makes annual payments rather than monthly payments.
Unfortunately for John, interest rates go up by 1% for each of the five years of his loan (Year 1 is 6%, Year 2 is 7%, Year 3 is 8%, Year 4 is 9%, Year 5 is 10%).
Calculate the amount of John's payment over the life of his loan. Compare these findings if he would have taken out a fix rate loan for the same period at 7.5%. Which do you think is the better deal?
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Solution Summary
The solution explains how to calculate the total payments made under adjustable rate and fixed rate mortgage in the attached Excel file.
Solution Preview
Please see the attachment. Please see the cell formula for calculation details.
Consider the following scenario: John buys a house for $150,000 and takes out a five
year adjustable rate mortgage with a beginning rate of 6%. He makes annual payments
rather than monthly payments.
Unfortunately for John, interest rates go up by 1% for each of the five ...
Purchase this Solution
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