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Okay you experts you...

Lemme' ask this question a different way...

I've got a 3/1 ARM with a principal of \$240,450 and the first 10 years are interest only. For the sake of trying to come to an understanding of basic concepts of amortization, let's assume that my rates are frozen over the next 30 years (I have no knowledge that such will be the case...).

The amortization schedule I was given shows the following payments:

Payments 1-36: \$976.83 per month--interest only
Payments 37-120: \$876.64 per month--interest only
Payments 121-359: \$1,505.03 per month, split between principal and interest with interest decreasing as principal increases
Payment 360: \$1,504.93 per month, split between principal and interest

Wanting to know how much interest I'd pay...I add the numbers up from the above schedule:

(36*\$976.83) + (84*\$876.64) + \$120,757.08 (the interest that acrues over the remaining 240 payment pereiods) or,

\$35,165.88 + \$73,637.76 + \$120,757.08 = \$229,560.72

Now, if I treat this as though it was a FRM, I can run the numbers and learn that at 4.875%, I'll pay \$217,639.22 in interest over 30 years.

These two numbers are not equal...how come? So this is my question, how is the interest caclulated on my 3/1 ARM? I understand that the \$976.83 (initial interest only payment charged from months 1-36) is 4.875%/12 * 240,450 (my principal). I have no idea why the interest only payment drops to \$876.64 for the next 7 years--I understand that it is still interest only, but I can't figure out where this number comes from.

I'll wait here at my computer...Jake

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