Adjustable-Rate Mortgage The Nguyens purchased a house for

Chapter 11, Problem 862

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Adjustable-Rate Mortgage The Nguyens purchased a house for $105,000 with a down payment of $26,250. They obtained a 30-year adjustable-rate mortgage. The terms of the mortgage are as follows: The interest rate is based on the 6-month Treasury bill, the interest rate charged is 3.00% above the rate of the Treasury bill on the date of adjustment, the interest rate is adjusted every 6 months, the interest rate will not change more than 1% (up or down) when the interest rate is adjusted, the maximum interest rate that can be charged for the duration of the loan is 16%, there is no lower limit on the interest rate, the initial mortgage interest rate is 7.5%, and the monthly payment of interest and principal is adjusted annually. Determine the a) initial monthly payment for principal and interest. b) interest rate in 6 months if the interest rate on the Treasury bill at the time is 5.00%. c) interest rate in 6 months if the interest rate on the Treasury bill at the time is 4.75%.