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A borrower takes out a $400,000 30-year fully amortizing 1-year LIBOR based ARM loan with a 2.5% margin and monthly payments. The loan has a “teaser” rate of 1% for the first year, after which the rate resets annually with 2% annual and 5% lifetime interest rate increase caps. On the first reset date, 1-year LIBOR is 1.5%. What would be the monthly payment in the second loan year?

 
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