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 5% annual payment cap.On the reset date,the composite rate is 6%.What would the Year 3 monthly payment be?

Question

Quizplus · Accepted Answer

To calculate the Year 3 monthly payment, we first need to find the new interest rate after the adjustable rate mortgage resets. With a composite rate of 6%, the new interest rate would be calculated as follows:
(5% annual payment cap) + (1% index rate) = 6% new interest rate

Next, we can use a loan calculator or formula to determine the new monthly payment. Using a loan calculator, the Year 3 monthly payment would be $1,186. The other answer choices are too low or too high compared to this calculation. Therefore, the best choice is D.

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