Bob has a choice of two loans when borrowing money to purchase a home:

Loan X is a 30-year adjustable rate mortgage for 100,000. The nominal annual interest rate for the first year is 4.5% convertible monthly. In the second year, the mortgage rate increases to 6.5% convertible monthly. In the third year, the mortgage rate increases to 8.5% convertible monthly and remains at 8.5% convertible monthly for the remainder of the loan.

Loan Y is a 30-year fixed rate mortgage for 100,000. The nominal annual interest rate is 7.5% convertible monthly.

Calculate the difference in the outstanding loan balance immediately after the 36th monthly payment for loan X and loan Y.

Possible Answers

A 275

B 503

C 698

D 829

E 904