What is the new payment on a 25-year, monthly payment, adjustable-rate mortgage after five years if the interest rate changes from 9.75% to 8.75% The original amount of the loan was $125,000, the original term was 25 years, and there are 20 years left on the mortgage. Round your answera. $1,050

b. $1,150

c. $1,000

d. $1,100

Option A is correct

Explanation:

R = [P * (r/12) ]/[1 - (12 / (12+r)) ]^ (12*r)

t = time = 25 years

P = initial principal = 125000

R = initial interest rate = 9.75

So therefore:

R = 125000 * (0.0975/12) / [ 1 - (12 / (12+0.975) ]^ (300)

R = 1015.625 / (1-0.088)

R = $1113.62 per month

Compounding R for the first five years = 6205.4

Balance = 125000 - 6205.4 = 118792.7

So therefore with the new rate = 8.75

New P = 118792.7

t = 20

R = 118792.7 * (0.0875/12) / [1 - (12 / (12+0.0875)) ^ (240) ]

R = 866.197/0.825

R = 1049.93 = $1050