Problem: Daniel Pascoe has just bought a new home for $350,000. Mr. Pasco has acquired financing for the new home from Lenapah Federal Savings under a loan program designed for professionals who wish to buy homes they can’t afford. Under the terms of the loan that is referred to as the 3/25 variable rate mortgage, Mr. Pasco will be legalized to borrow the full $350,000 purchase price of home. Though the “3/25” needs that Mr. Pascoe pay off the loan over a 25-year period, the first 36 monthly mortgage payments are determined as when the loan were to be amortized (paid off) over twenty five years at a monthly compounded rate of 3.6 percent. At a end of three years (36 monthly payments), the interest rate on loan will be reset to a monthly compounded rate of 7.2 percent, with the outstanding balance of loan to be paid off over the remaining term of the loan (22 years). Supposing that Mr. Pascoe makes his monthly payments as scheduled throughout the first three years of the loan term, determine
a. The initial monthly payment on loan
b. The new monthly payment at the end of 3 years when the interest rate on the loan is reset to a monthly compounded rate of 7.2 percent.