You are considering an ARM with the following characteristics:
Mortgage amount = $200,000
2/6 Interest rate caps
Margin = 2.50
Index = 1 year TB yield
Term = 30 years
One-year adjustable Monthly Payments Discount points = 2.00
Initial Teaser Rate = 3.50%
Prepayment penalty = 4% for the All subsequent adjustments first three years
A. If the TB yield is 3.75% at the outset, what is the monthly payment for year one?
B. If the TB yield goes from 3.75% to 4.75% at the end of year one, what is the monthly payment for year two?
C. If the loan is repaid at the end of year two, what is the effective cost?