A borrower is considering a 1-year adjustable rate mortgage of $250,000 that starts at 2.5%, 30 year amortization. The margin is 2.25%. The annual change caps are 2% per year. The current index is 1.25%. The life cap is 6% over the start rate. What is the initial monthly payment?"
a) What is the fully indexed rate? [Format Answer as a percentage - X.XX]
b) "At the end of year 1, what is the maximum allowed interest rate? [Format Answer as a percentage - X.XX]"
c) If the INDEX moves up to 1.75%, what is the monthly payment for year 2? [WARNING: The loan balance is paid down a bit during the first year.]
Please explain & show how to calculate!