The Smith family has borrowed $260,000 using a 3/1 ARM with an initial fully-indexed rate of 4.00% and paid no points at origination. The fully-indexed rate is determined by the yield on the LIBOR index plus a margin of 250 basis points. What was the yield on the LIBOR index at the time when the Smith family purchased their house?

What is the balance remaining of their loan at the first reset date?

If, at the first reset date, the yield on the LIBOR index is 2.25%, what is the scheduled monthly payment for the fourth year of the loan?