What is the correct monthly payment in year 6 for a 5/1 adjustable rate mortgage tied to the 1-year Treasury rate?

In the context of a 5/1 adjustable rate mortgage (ARM), the initial fixed interest rate lasts for the first five years, after which the rate will adjust annually based on a specified index—in this case, the 1-year Treasury rate.

After the fifth year, the interest rate is recalibrated to reflect the current rate of the 1-year Treasury and may include a margin added by the lender, which could cause the monthly payment to change.

To determine the correct monthly payment in the sixth year, one would typically follow these steps:

1. Identify the index rate at the time of adjustment—this is tied to the 1-year Treasury rate.
2. Calculate the new interest rate by adding the margin to the index rate.
3. Recalculate the monthly payment based on the remaining balance of the mortgage and the new interest rate over the remaining term of the loan.

This particular choice of $1,077.31 indicates a specific calculation scenario where the adjusted rate yields a payment that accounts for market conditions, the remaining balance, and the loan structure after five years.

Accurately calculating these adjustments often involves using financial calculators or mortgage software that can factor in amortization schedules, remaining term, and future interest rates.