An 'adjustable-rate mortgage' (ARM) with a 2/2/6 cap means:
Why B. The initial adjustment is capped at 2%, subsequent adjustments at 2%, and total lifetime adjustment at 6% Is Correct
Answer B: B. The initial adjustment is capped at 2%, subsequent adjustments at 2%, and total lifetime adjustment at 6%
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.
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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.
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.
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.
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