Question

John Anderson bought a home with a 10.5% adjustable rate mortgage for 30 years. He paid $9.99 monthly per thousand on his original loan. At the end of 5 years, he owes the bank $55,000. Now that interest rates have gone up to 12.5%, the bank will renew the mortgage at this rate or John can pay $55,000. John decides to renew and will now pay $10.68 monthly per thousand on his loan. (You can ignore the small amount of principal that has been paid.) What is the amount of the old monthly payment? What is the amount of the new monthly payment? What is the percent of increase in his new monthly payment?

Answer 1

Old
9.99×55
=549.45
New
10.68×55
=587.4

((10.68÷9.99)−1)×100
=6.9%

Answer 2

Answer:

The original mortgage required a payment equal to $9.99 per every $1,000, so the total monthly payment = $9.99 x ($55,000 / $1,000) = $9.99 x 55 = $549.45

The new mortgage requires a payment equal to $10.68 per every $1,000, so the total monthly payment = $10.68 x ($55,000 / $1,000) = $10.68 x 55 = $587.40

The percent increase = [($587.40 / $549.45) - 1] x 100 = 6.91%