An adjustable-rate mortgage (ARM) in Kentucky has an initial rate of 4% with a 2% annual cap and a 6% lifetime cap. If the initial rate is 4%, the maximum rate after 3 years is:

Explanation

With a 2% annual cap, the rate can increase by a maximum of 2% per year: Year 1: 4%, Year 2: 6%, Year 3: 8%, but the lifetime cap is 4% + 6% = 10%. After 3 adjustments, maximum is 10%.