Sharon borrows an adjustable rate loan ( ARM ) of $100 000 with 3 year loan maturity . The initial interest rate for the loan is 8 5% the margin is 3% the loan amortization period is 15 years , the frequency of adjustment is 1 year monthly compounding ) , no interest rate cap or payment cap . There will be a discount point of 3 % for the loan . Also the index rates for the next 2 years are 1 1 % and 8% respectively . What will be the effective mortgage yield for borrowing this loan ? 12.479 12.28% 11.989 -12029