Treasury interest rate increase before you have to default

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Reference no: EM131453374

Assume you have a $150,000 outstanding amount on an adjustable-rate loan from the Bank of America which amortizes over 10 years. According to your contract your monthly payment will be re-calculated every year based on most recent 10 yr. interest rate (which is 2.5%) plus a 1% premium. Your monthly income allows you to pay up to $1600 per month. However, Janet Yellen is signaling potential interest hikes in the near future. How much can the 10-year treasury interest rate increase before you have to default? (Hint don’t forget to add the premium)

Reference no: EM131453374

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