Jon Ericson bought a home with a 11.5% adjustable rate mortgage for 20 years. He paid $10.67 monthly per thousand on his original loan. At the end of 2 years he owes the bank $50,000. Now that interest rates have gone up to 13%, the bank will renew the mortgage at this rate or Jon can pay $50,000. Jon decides to renew and will now pay $11.72 monthly per thousand on his loan. You can ignore the small amount of principal that has been paid.
What is the amount of the old monthly payment? =$
What is the amount of the new monthly payment? =$
What is the percent of increase in his new monthly payment? =%
To find the answers to these questions, we can follow these steps:
Step 1: Calculate the original loan amount.
To calculate the original loan amount, we can divide the total owed at the end of 2 years ($50,000) by the monthly cost per thousand ($10.67).
Original loan amount = $50,000 / ($10.67 / 1000)
Step 2: Calculate the old monthly payment.
To calculate the old monthly payment, we can multiply the original loan amount by the monthly cost per thousand.
Old monthly payment = Original loan amount * ($10.67 / 1000)
Step 3: Calculate the new monthly payment.
To calculate the new monthly payment, we can multiply the original loan amount by the new monthly cost per thousand.
New monthly payment = Original loan amount * ($11.72 / 1000)
Step 4: Calculate the percent increase in the new monthly payment.
To calculate the percent increase, we can use the following formula:
Percent increase = (New monthly payment - Old monthly payment) / Old monthly payment * 100%
Now, let's calculate the answers:
Step 1: Original loan amount.
Original loan amount = $50,000 / ($10.67 / 1000)
Original loan amount = $50,000 / 10.67
Original loan amount ≈ $4,687.61
Step 2: Old monthly payment.
Old monthly payment = Original loan amount * ($10.67 / 1000)
Old monthly payment = $4,687.61 * ($10.67 / 1000)
Old monthly payment ≈ $49.99
Step 3: New monthly payment.
New monthly payment = Original loan amount * ($11.72 / 1000)
New monthly payment = $4,687.61 * ($11.72 / 1000)
New monthly payment ≈ $54.92
Step 4: Percent increase in the new monthly payment.
Percent increase = (New monthly payment - Old monthly payment) / Old monthly payment * 100%
Percent increase = ($54.92 - $49.99) / $49.99 * 100%
Percent increase ≈ 9.86%
Therefore,
The amount of the old monthly payment = $49.99 (approximately)
The amount of the new monthly payment = $54.92 (approximately)
The percent of increase in his new monthly payment = 9.86% (approximately)