Problem $5-5$

An interest$-$only ARM is made for $$212,000$ for $30$ years. The start rate is $5$ percent and the borrower will make monthly interest$-$only payments for three years. Payments thereafter must be sufficient to fully amortize the loan at maturity.

Required:

a$.$ If the borrower makes interest$-$only payments for three years, what will the payments be$?$

b$.$ Assume that at the end of year $3,$ the reset rate is $6$ percent. The borrower must now make payments so as to fully amortize the loan. What will the payments be$?$