Fixed mortgage and adjustable rate mortgage

timer Asked: Jun 1st, 2013

Question description

Decide whether the following statment makes(or is clearly true) or does it not make sense (or is clearly false). Explain reasoning.

I had a choice between a fixed rate mortgage at 6% and an adjustiable rate mortgage that started at 3% for the first year with a maximum increase of 1.5% points per year. I took the adjustiable rate, because I'm planning to move with three years.

a) The statment does not make sense. The average monthly payment for the adjustiable rate mortgage will be higher over the first 3 years than a fixed rate mortgage.

b) The statement makes sense. For adjustiable rate mortgages, the 1st 3 years worth of payments go almost entirly toward pricipal.

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