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# Mortgages and interest payments

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Consider the following scenario: John buys a house for \$135,000 and takes out a five year adjustable rate mortgage with a beginning rate of 5%. 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 5%, Year 2 is 6%, Year 3 is 7%, Year 4 is 8%, Year 5 is 9%).
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 6.5%. Which do you think is the better deal?

https://brainmass.com/math/consumer-mathematics/mortgages-interest-payments-494810

#### Solution Preview

1st option:
In my calculation, I am assuming every year new Equated Annual Instalment (EAI) is calculated.

1st year:
EAI = \$3119; Principal amount paid: \$2444; interest paid: \$675; balance principal = \$11056
2nd year:
EAI = \$3191; Principal amount paid: \$2528; interest paid: \$663; balance principal = \$8528
3rd ...

#### Solution Summary

The solution discusses mortgages and interest payments.

\$2.19