A borrower is eligible for a mortgage carrying a principal and interest payment of $1,800/month based on their income and debt ratios. The qualifying rate for the stress test is 6.25%. If the actual contract rate is 4.0%, what is the approximate *actual* monthly mortgage payment they would make, assuming the bank uses their qualifying capacity at the stress test rate to determine maximum loan amount, then calculates payments at the lower contract rate? (Assume a 25-year amortization for calculations.)

Question: A borrower is eligible for a mortgage carrying a principal and interest payment of $1,800/month based on their income and debt ratios. The qualifying rate for the stress test is 6.25%. If the actual contract rate is 4.0%, what is the approximate actual monthly mortgage payment they would make, assuming the bank uses their qualifying capacity at the stress test rate to determine maximum loan amount, then calculates payments at the lower contract rate? (Assume a 25-year amortization for calculations.)

Answer options:

• $1,800/month ✅ Approximately $1,470/month
• Approximately $2,250/month
• The payment cannot be determined without knowing the principal amount.

Correct answer: Approximately $1,470/month

Explanation: If a borrower qualifies for a payment of $1,800/month at the stress test rate of 6.25% over 25 years, this implies a certain maximum loan amount (approximately $288,000). If that same principal amount is then calculated at the contract rate of 4.0% over 25 years, the actual payment would be approximately $1,470/month. (Pv = $288,000, i = 6.25%/12, n = 300, Pmt = $1884 is more accurate -- Pv = 288,000, i=4%/12, n=300, Pmt = $1471).