Question

16. a borrower takes a 30-year, fully amortizing, 5/1 arm for $225,000 with an initial interest rate of 4.375%. assuming the index on which the loan rate is based rises by 1% at the end of the fourth year of the loan and remains at that level, what will the payment be in the sixth year of the loan?

Answer 1

The annual payment in the sixth year of the 30-year, fully amortizing, 5/1 ARM loan of $225,000, will be $15,099.92 at 5.375%.

How is the annual payment determined?

The annual payment in the sixth year is computed using the balance at the end of the fourth year at an interest rate of 5.375% instead of the initial 4.375% since it has increased by 1%.

We can calculate the annual payments or deposits using an online finance calculator as follows:

Annual Schedule

Period      PV               PMT               Interest          FV

1 $225,000.00 $-13,610.65      $9,843.75     $-221,233.10

2 $221,233.10    $-13,610.65      $9,678.95     $-217,301.40

3 $217,301.40    $-13,610.65      $9,506.94    $-213,197.68

4 $213,197.68    $-13,610.65      $9,327.40    $-208,914.43

5 $208,914.43

N (# of periods) = 26 years (30 - 4)

I/Y (Interest per year) = 5.375% (4.375% + 1%)

PV (Present Value) = $208,914.43 (balance at the end of year 4)

FV (Future Value) = $0

Result:

Annual payments (PMT) = $15,099.92

Thus, from the fifth year, the borrower will make an annual payment of $15,099.92 instead of the $13,610.65 made during the first four years because of the adjustable-rate mortgage (ARM) the loan is based on.

Learn more about periodic payments and adjustable rate mortgages at https://brainly.com/question/13031679 and https://brainly.com/question/545887

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