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?
2. What is the fully indexed rate?
3. At the end of year 1, what is the maximum allowed interest rate?
4. If the index moves up to 1.75%, what is the monthly payment for year 2?