PLEASE ANSWER THE QUESTION AND GIVE THE PROCESS OF CALCULACTION A borrower takes

Question

PLEASE ANSWER THE QUESTION AND GIVE THE PROCESS OF CALCULACTION

A borrower takes out a 10-year interest only mortgage loan for $600000 with monthly payments. In the first two years the loan has an a “teaser” rate of 1%, after which the rate resets each year with 2% annual and 5% lifetime rate caps. On the first reset date, the fully indexed rate is 6%. What would be the monthly payment in the third loan year?

a. 3000

b.2500

c.1500

d. Because of the interest rate caps, the monthly payment would not changes

Explanation / Answer

After the first two years maximum interest rate can be charged with annual cap of 2%= existing rate+ annual cap= 1%+2%= 3%

Interest per month= 600000*3%*1/12= 1500

Option C. is correct

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