Compare Mortgage Interest Rates
adjustable rate mortgage vs fixed rate mortgage issues …… finance issues?
Consider the following scenario: John buys a house for $ 150,000 and take another five years adjustable rate mortgage with a start at 6%. He makes annual payments instead of monthly payments. Unfortunately for John, interest rate increases 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 size of John's payment over the life of his loan. Compare these results, though he would have taken out a fix rate loan during the same period was 7.5%. What do you think is better offers? I worked out the problems and ended up getting these adjusted rate of first year = 9000 years 2 = 3 = 10,500 years 12,000 years 13,500 years 4 = 5 = 15000 total = 60,000 fixed income 150,000 * 7.5% = 112,500 112,500 * 5 = 562,500 so the best would be the adjustable rate. Am I correct? If I'm not please show me how Doing this problem thanks
well first and foremost, you must have a mortgage calculator and then you need an amortization schedule as well. The first 5 years fixed then the note can adjust up or down, but never less than the initial 6%, so all notes have a ceiling or a ceiling rate as well and these are usually 6% from the floor at 6%, so it could max of 12%. The last thing to know is the term for the note. What you show in your problem is a 1 year arm is not a 5 year arm. Fixed rates are always better for any single customer, unless they know without any shadow of doubt that they will sell and move in the first few years. It is very rare. In the last few years only had 1 customer require a 5 year arm, and he gave me his reasons for it. Moving in 3 years and it was a must for him. Oh, the total payments on a 30-year fixed@7.5% is $ 377,575.83 on a 15-year note is $ 250,293.34 I am a mortgage banker in TN