You just entered into an interest only home loan with a principal of $1,000,000, 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 $3,000 per month.

b. At the new interest rate of 4.8% pa, the loan payments will be $4,000 per month.

c. Your principal will be unchanged at $1,000,000.

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 over a longer period. It would take you 334 months to pay off the loan if the bank allowed your payments to remain constant even after the interest rate change.

e. If you couldnt afford the higher payments, you could try to pay back the loan in full which may involve having to sell your house and incurring the associated costs.