Variable Rate Mortgage Quiz

Jeff's Mortgage Company is offering you a 30 year, $200,000 variable rate mortgage with an introductory rate of 5% for the first year (12 months). Interest rates for the following years pegged at 2 over the 1-year LIBOR rate prior to the new year. Jeff is using the following LIBOR rates to calculate your interest.

1 yr. LIBOR rate year

7% 2

5% 3

#1. What is the monthly payment for year 1?

#2. What is the monthly payment for year 2?

#3. What is the monthly payment for year 3?

#4. What is the balance on this loan at the end of 3 years (36 payments)?

#5. How much interest was paid to Vulcan during the first 3 years (36 payments) at this loan?