You just entered into a fully amortising home loan with a principal of $800,000, a variable interest rate of 3.6% pa and a term of 25 years.

Moments after you sign the contract, the variable interest rate suddenly rises to 4.8% pa.

Assume that the higher interest rate was implemented immediately. Also assume that rates were and are expected to remain constant.

Which of the following statements is NOT correct?

Select one:

a. At the original interest rate of 3.6% pa, the loan payments would have been $4,048.02 per month.

b. At the new interest rate of 4.8% pa, the loan payments will be $4,583.98 per month.

c. If you couldnt afford the higher payments, to avoid foreclosure you could ask the bank to change your loan to be interest-only, in which case the monthly payments would be $3,200 at the new rate of 4.8% pa.

d. If you couldnt afford the higher payments, to avoid foreclosure you could ask the bank to allow you to make the same monthly payments but to allow you to pay the loan off over a longer period. It would take you 390 months to pay off the fully amortising loan if the bank allowed your payments to remain constant even after the interest rate change.

e. If you couldnt afford to make any payments because you suddenly fell sick, to avoid foreclosure you could ask the bank to capitalise your interest charges so that the principal would grow higher and you could temporarily hold off making any payments. At the new 4.8% pa rate the principal would grow by 0.4% per month, so thats $803,200 after the first month.