A borrower secures a $300,000, 15-year adjustable rate mortgage (ARM) with an initial interest rate of 2%. Payments are monthly. The interest rate will reset in two years and remain at that level for the remainder of the mortgage. Assume a reset rate of 5%.
a. What are the initial payment, the initial loan balance, and the reset payment?
b. What is the yield on the loan? What is the yield if the lender charges 4 points?