A 30-year fixed rate-mortgage is available now at 7% APR

A 30-year fixed rate-mortgage is available now at 7% APR. Monthly payments (360 of them) will be made on a $200,000 loan. The realtor says that if you wait several months to obtain a mortgage, the APR could be as high as 8% "and the monthly payments will jump by 14%."

Is the realtor's claim true?

What percent increase in monthly payment will result from this 1% increase in APR?

Please show work.

Expert Answer

Current Monthly Payment = pmt(rate,nper,pv,fv)

Nper(indicates the period) = 30*12 = 360

PV (indicates the loan amount) = 200000

PMT (indicate the monthly payment) = ?

FV (indicates the maturity value) = 0

Rate (indicates monthly APR) = 7%/12

Current Monthly Payment = pmt(7%/12,360,-200000,0)

Current Monthly Payment = $ 1330.60

After 1% increase in APR

Revised Monthly Payment = pmt(rate,nper,pv,fv)

Nper(indicates the period) = 30*12 = 360

PV (indicates the loan amount) = 200000

PMT (indicate the monthly payment) = ?

FV (indicates the maturity value) = 0

Rate (indicates monthly APR) = 8%/12

Revised Monthly Payment = pmt(8%/12,360,-200000,0)

Revised Monthly Payment = $ 1467.53

Percentage increase in monthly payment = (1467.53- 1330.60)/1330.60

Percentage increase in monthly payment = 10.29%

Answer

Percentage increase in monthly payment = 10.29%

No realtor's claim is not true as he said that it will rise by 14% but it would rise by 10.29%