A fully amortizing 1-year ARM for $200,000 is made for 25 years with monthly payments. The initial composite rate is 4%, but the loan comes with a teaser rate of 3% for the first year. The loan also has a 1.5% periodic cap and a lifetime cap of 3%
a. What will be the payment amount during the first year?
b. What will be the payment in year 2 if the composite is 6.5% at the end of year 1? By what is the percentage increase in payment?
c. What will be the payment in year 3 if the composite rate is now 8.