A Borrower Takes Out a 30-Year Adjustable Rate Mortgage Loan

Multiple Choice

A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments. The first two years of the loan have a "teaser" rate of 4%, after that, the rate can reset with a 2% annual rate cap. On the reset date, the composite rate is 5%. What would the Year 3 monthly payment be?

A) $955
B) $1,067
C) $1,071
D) $1,186
E) Because of the rate cap, the payment would not change.