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Tim wants to buy an apartment that costs $1,750,000 with an 85% LTV mortgage. Tim got a 30 year, 3/1 ARM with an initial teaser

Tim wants to buy an apartment that costs $1,750,000 with an 85% LTV mortgage. Tim got a 30 year, 3/1 ARM with an initial teaser rate of 3.75%. The reset margin on the loan is 300 basis points above 1 year CMT. There are no caps. The index was 1% at the time of origination. Tim also had to pay 6.5 points for this loan.

Compute the true APR (annualized IRR) for this loan.

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