You took out a $500,000 fully amortizing loan at a variable interest rate of 3.2% pa and a term of 30 years. Ten months later, just after your tenth monthly payment, the bank increases the interest rate to 4.8% pa.

Assume that rates were and are expected to remain constant.

Which of the following statements is NOT correct?

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The monthly payment at the original interest rate of 3.2% was $2,162.33


After the rate changes to 4.8%, the monthly payment is $2,612.47


The principal outstanding at the time of the rate change (T=10) is $483,948.16


If you want to keep the same monthly payment after the rate change, and the bank allows you to pay the loan over a longer period, it will take 602 months to repay the loan.


From the bank’s point of view, the interest rate change represents an increase in the income return on a debt asset.

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