A borrower takes out a " hybrid mortgage loan " for $200.000 with monthly payments This loan combines elements of fixed- rate mortgage ( FRMs ) for periods of 2 years after which interest rates are reset and the loan becomes an adjustable mortgage ( ARM ) . The amortization period is 30 years . The first two years of the loan have a " teaser rate of 4% After that the interest ate can reset with a 2 % annual interest rate cap Assume that on the reset date , the composite rate ( i . e . . the market index plus the margin ) is 5% . What would the Year 3 monthly payment be ? $955 $1067 $1 071 $1 186