Dakota just purchased a house for $700,000. Dakota financed the purchase with a 30-year, adjustable-rate, fully amortizing mortgage loan with monthly payments. The annual interest rate on the loan resets every 2 years to LIBOR + 130 basis points with a maximum rate increase of 180 basis points per reset and a lifetime cap on the interest rate of 480 basis points over the initial annual interest rate. The initial annual interest rate on the loan is 4.92% for 2 years. The loan involved points of 1.20%, other up-front financing costs paid to the lender of $3,100, and up-front financing costs paid to third party service providers of $4,800. The original LTV ratio for the loan is 73%.

a. What is the monthly payment associated with the mortgage loan in years 1 and 2?

b. What is the monthly payment associated with the mortgage loan in years 3 and 4 if LIBOR is 4.34% on the relevant date for resetting the rate?

c. What is the monthly payment associated with the mortgage loan in years 5 and 6 if LIBOR is 6.74% on the relevant date for resetting the rate?

R1