Finance
An adjustable-rate mortgage (ARM) in Florida has a 'cap' of 2/6. This means:
AThe rate can increase 2% per year with a 6% lifetime maximum increase✓ Correct
BThe loan has a 2-year fixed period and a 6% starting rate
CThe initial rate is 2% and the maximum is 6%
DThe rate decreases 2% every 6 months
Explanation
An ARM cap of 2/6 means the interest rate can change a maximum of 2% per adjustment period, with a total lifetime cap of 6% above the initial rate, protecting borrowers from unlimited rate increases.
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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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