Finance
A Louisiana borrower takes out an adjustable-rate mortgage (ARM) with an initial rate of 4%, a 2% periodic cap, and a 6% lifetime cap. If the index rate rises substantially, the maximum rate the borrower could ever pay is:
A6%
B8%
C10%✓ Correct
D12%
Explanation
The lifetime cap limits the total increase over the initial rate. Initial rate 4% + lifetime cap 6% = maximum rate of 10%. The periodic cap limits how much the rate can change per adjustment period.
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