Raylan Givens borrows $150,000 to buy a house. The adjustable rate mortgage carries a 1.5 percent rate for the first 3 years. After that the rate will change annually to reflect market conditions. The annual cap is 2% (i.e., the largest increase in any year is 2%). The loan term is 30 years and payments are made monthly.
1. What is Raylan’s initial mortgage payment?
2. What is the remaining balance on the loan after three years?
3. What is the greatest mortgage payment Raylan might owe when the interest rate resets at the beginning of the 4th year?