Finance
A Connecticut borrower's adjustable-rate mortgage (ARM) has a 2/2/6 cap structure. What does the '6' cap mean?
AThe rate can increase by 6% at the first adjustment
BThe rate can increase by 6% per year
CThe rate cannot increase more than 6% above the initial rate over the life of the loan✓ Correct
DThe loan term cannot exceed 6 years
Explanation
In an ARM cap structure (e.g.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
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.
Math Concepts
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