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?
- Assume the loan in the previous question allowed for negative amortization. What would be the outstanding balance on the loan at the end of year 3?
Please show work.