Finance
A buyer in Arizona obtains a $320,000 adjustable-rate mortgage (ARM) with an initial rate of 5.5%. The loan has a 2/2/5 cap structure. The MAXIMUM rate after the first adjustment is:
A7.5%✓ Correct
B10.5%
C5.5%
D8.0%
Explanation
A 2/2/5 cap means the first adjustment is capped at 2%, each subsequent adjustment is capped at 2%, and the lifetime cap is 5% above the initial rate. After the first adjustment: 5.5% + 2% = 7.5% maximum.
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