How to model an ARM refinance
I’d like to model an adjustable rate mortgage refinancing and need guidance.
My current mortgage payment is $2037 with a loan balance of $246,000. I wish to model an ARM 5/1 refinance: first 5 years a $1000 monthly payment in which principle and interest are roughly equal. The 2015 loan balance is $246,000 and paid off under a single $216,000 payment in 2020 (5th year). I propose modeling in two steps:
1 Primary Home/Current Home: Balance = $30,000 (First 5 year principle pay down is $500/mo * 60 months), Monthly Payment = $1,000, Years = 5.
2.Loan pay off under a single payment of $216,000 ($246,000-30,000) in 2020.
Would appreciate feedback on the appropriateness of this approach. How should I model an ARM? Thanks!