Worked example: rate changes from 5% to 7%
Assume a $150,000 loan with a 20-year term and a 5.00% rate. The original monthly payment is $989.93. After 60 payments, the balance is approximately $125,182.29. The rate then changes to 7.00% and the payment is recalculated over the remaining 180 months.
| Original monthly payment at 5% | $989.93 |
|---|---|
| Balance after 60 payments | $125,182.29 |
| New payment at 7% for 180 months | $1,125.17 |
| Payment increase | $135.24 per month |
| Original total interest if rate stayed 5% | $87,584.07 |
| Estimated total interest after change | $111,927.31 |
The effective date controls the first changed row
Do not apply the new rate to an earlier or later period merely because it is convenient. Record the old rate, new rate, notice date, and exact effective date from the loan documents.
If the change occurs between scheduled payment dates, a date-based calculation may need to split the accrual period. That is different from simply assigning one rate to the entire month.
Recalculate the payment or keep it fixed?
Some agreements re-amortize the remaining balance so the loan still ends on the original maturity date. Others keep the payment fixed, which changes the payoff date or creates a larger final payment. Model the actual contract method.
If a remaining balance is due at maturity, also review the balloon-payment amortization guide.
Changing-rate checklist
- Verify the rate-change effective date.
- Confirm the remaining number of payments.
- Determine whether the payment is recalculated.
- Check for caps, floors, margins, or index rules.
- Compare the revised total interest and payoff date.
- Save a copy of the schedule before and after the change.
Build and compare the schedule
Use the free amortization calculator for a standard schedule. Use the registered Windows amortization software when you need to edit individual dates, payments, rates, or notes and save the revised loan.