I think the monthly payment would exact follow the interest rate if it were an interest only loan. For example, $2k in interest per month would be $3k in interest per month in the rate went from 4% to 6%. However, I think I/O loans also add principal payments when the rate resets so this is not a realistic example.
The 30yr fixed and the traditional ARMs include some principal payment, so if you are paying $500 towards principal and $1.5k towards interest and the rate increased from 4% to 6% this would make your interest payment $2250. So your total mortgage payment would increase from $2k to $2750.
Someone please correct me if I am misunderstanding this. Also, this made me think of a question. Towards the end of a loan the principal is the majority of the payment, would this alter (lessen) the effect of a rate increase? Or is this all factored in at the conception of the loan?
