An adjustable-rate mortgage (ARM) has an initial rate of 4.5% with a 2/2/6 cap structure. This means the rate can increase a maximum of:
Why 2% at first adjustment, 2% per subsequent adjustment, 6% lifetime Is Correct
Answer B: 2% at first adjustment, 2% per subsequent adjustment, 6% lifetime
Exam Tip: Finance
Finance questions often involve calculations. Master the T-bar method, understand the difference between conventional and government-backed loans, and know key ratios like LTV and DTI.
Key Finance Terms in This Question
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Key Terms to Know
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
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