Jessica took a 3/1 ARM for 30 years with monthly payments. Her teaser rate was 4.5%, and the interest rate is indexed to 1 year CMT rate with a 2.5% margin. At the beginning of year 4 of her mortgage, the 1 year CMT is 2%. At the time of the first reset Jessica's payment will ________________.

		Stay the same
		Increase
		Impossible to determine
		Decrease

Consider a 3/1 ARM with initial cap equal to 5%, periodic cap equal to 1%, and lifetime cap equal to 6%. Suppose the teaser rate for this loan is 2.25% and the loan is indexed to LIBOR rate with a margin of 2.5%. Which statement is FALSE about future interest rates for this loan?

		The maximum interest rate on this loan is 6%
		At the first reset, the rate can not go above 7.25%
		If at the first rest the LIBOR rate is 3%, then the fully indexed rate will be 5.5%
		The interest rate in the second year will be 2.25%