You have decided to buy a 2,250 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 100% of the house value, so you do need savings for down payment.

You sign a 20-year 2/1 adjustable rate mortgage (ARM), which carries a 3.8% fixed rate for the first 2 years, and then (after 2 years) is adjusted to the 1-year LIBOR + 0.75 %.

Compute your monthly payments in 2 years (month 25) if the LIBOR is 4%

Multiple Choice

$2,625

$2,388

$2,194

$2,743