Posted by **sweet** on Saturday, October 23, 2010 at 12:59pm.

Consider the following scenario: John buys a house for $150,000 and takes out a five year adjustable rate mortgage with a beginning rate of 6%. 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 6%, Year 2 is 7%, Year 3 is 8%, Year 4 is 9%, Year 5 is 10%).

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 7.5%. Which do you think is the better deal?

- Finance -
**Reiny**, Saturday, October 23, 2010 at 1:46pm
When I answered this identical post for you yesterday, I was hoping you would make an attempt.

http://www.jiskha.com/display.cgi?id=1287786024

It is not that hard.

let the annual payment be x

then

x(1.06)^-1 + x(1.07)^-2 + ... + x(1.10)^-5 = 150000

take out x as a common factor to have

x(1.06)^-1 + 1.07^-2 + ... + 1.10^-5) = 150000

x = .... You do the button-pushing

vs

x( 1 - 1.075^-5)/.075 = 150 000

I had calculated that for you in an earlier post when you asked for the chart.

## Answer this Question

## Related Questions

- Finance - Consider the following scenario: John buys a house for $150,000 and ...
- Finance - A mortgage broker is offering a $225,000 30-year mortgage with a ...
- finance - John borrows $150,000. The terms of the loan are 7.5% over the next 5 ...
- Business - Bob buys a house for 150,000 with a mortgage rate of 5.8% convertible...
- Finance - Say that you purchase a house for $270,000 by getting a mortgage for $...
- Math - Pey Soon has taken out a 20-year, $150,000 mortgage with monthly ...
- accounting - House mortgage You have just purchased a house and have obtained a...
- Finance - Dave takes out a 30-year mortgage of 200000 dollars for his new house...
- accounting - John borrows $150,000. The terms of the loan are 7.5% over the next...
- Finance - 12. Your current $155,000 mortgage calls for monthly payments over 25 ...

More Related Questions