A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments.The first two years of the loan have a "teaser" rate of 4%,after that,the rate can reset with a 2% annual rate cap.On the reset date,the composite rate is 5%.What would the Year 3 monthly payment be?

Question

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The teaser rate of 4% applies for the first two years. After that, the rate resets to the composite rate of 5%, but due to the 2% annual rate cap, the maximum increase is to 6%. The new monthly payment is calculated based on a 6% interest rate for the remaining 28 years.

A Borrower Takes Out a 30-Year Adjustable Rate Mortgage Loan