Question

Jacey obtains a 30-year 6/2 ARM at 4% with a 2/6 cap structure in the amount of $224,500. What is the monthly payment during the initial period?

Answer 1

The answer is $1,071.80.

Answer 2

General Idea:

We need to make use of the below formula to find the monthly payment..

$Monthly \; Payment\; =\; \frac{P \times \frac{r}{12}}{(1-(1+\frac{r}{12})^{-m})} \\ \\ Where:\\ P\; is\; Principal\\ r\; is\; rate\; in\; decimal\; form\\ m\; is\; number\; of\; monthly\; payments$

Applying the concept:

Given:

$P=\ 224,500\\ r=4\%=0.04\\ m=30\; year \times 12 \; months/year=360$

Substituting the given in the formula we will get the monthly payment.

$Monthly\; Payment\; =\; \frac{224500 \times \frac{0.04}{12}}{(1-(1+\frac{0.04}{12})^{-360})} =\frac{\frac{8980}{12}}{(1-0.301796)} =\frac{748.3333}{0.698204} \\ \\ Monthly \; Payment= \ 1071.7975$

Conclusion:

The monthly payment during the initial period is $1072.