Jake buys a house costing $500,000. He puts 20% down and borrows the balance negotiating a 3-year ARM.
The initial teaser rate is 3%; after that the interest rate may be adjusted annually to 1% plus the current 90-day T-Bill rate.
Annual and lifetime interest rate adjustments and caps are 2% and 5%, respectively. Amortization is done on a 30 year basis. This is a non-carryover ARM.
The 90-day T-bill rate is as follows:
At beginning of year 1: 3%
At beginning of year 2: 3.5%
At beginning of year 3: 4%
At beginning of year 4: 4.5%
At beginning of year 5: 4.8%
What are Jake's monthly principal and interest payments for year 4?
What are Jake's monthly principal and interest payments for year 5?