A $200,000 30-year adjustable rate mortgage is made at an initial annual interest rate of 12% with annual interest rate resets. The borrower and lender have negotiated a monthly payment cap of $1,600.
a. What will be the loan balance at the end of year 1?
b. If the interest rate increases to 13% at the end of year 1, how much interest will be accrued as negative amortization in year 2 if the payment cap remains at $1,600?