Jennifer just borrowed $100,000 to buy a house with a 30-year adjustable-rate mortgage (ARM). The benchmark is LIBOR, which is currently at 2.5%. Your margin is 2% and the loan has caps of 1% per year and 5% for life. While her introductory rate should be 4.5%, the lender has given her a "teaser" rate of 4% for the first year. Assuming the periodic cap applies to any initial rate, including the teaser rate, if LIBOR increases from 1 1/2% to 4% in one year, then in her second year, 

calculate how much Jennifer's mortgage rate will increase?

Answer rating: 100% (QA)

SOLUTION Jennifers ARM rate is calculated as follows ARM rate LIBO... View the full answer