Question: A borrower is offered a 30 year, fully amortizing ARM with an initial rate of 4.00%. After the first year, the interest rate will adjust

A borrower is offered a 30 year, fully amortizing ARM with an initial rate of 4.00%. After the first year, the interest rate will adjust each year, using 1 yr LIBOR as the index rate, plus a margin of 275 basis points. The price of the property is $900,000 and the loan will have an initial LTV ratio of 85% At the first reset date, 1 year LIBOR rate is 3%.

What is the borrower’s payment during the 2nd year of the loan?

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