. A borrower takes out a 30 - year adjustable rate mortgage loan for $200,000 with...

. 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

(D) $1,186

(E) Because of the rate cap, the payment would not change.

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