You have decided to buy a 2,000 square-feet house in Denton, close to a good public school. The average price in the area is $190 per square feet. The bank will finance 80% of the house value, so you need savings for the 20% down payment.

You sign a 30-year 3/1 adjustable rate mortgage (ARM), which carries a 6.2% fixed rate for the first 3 years, and then (after 3 years) is adjusted to the 1-year LIBOR + 1.25 %.

Compute your monthly payments in 3 years (month 37) if the LIBOR is 7%

Multiple Choice

$2,095

$2,880

$3,003

$2,051

$2,256