Finance
An adjustable-rate mortgage (ARM) has a 2/6 cap structure. This means:
AThe rate cannot exceed 2% per year with a 6% lifetime cap
BThe rate may not increase more than 2% at any adjustment, with a maximum 6% increase over the life of the loan✓ Correct
CThe initial fixed rate period is 2 years, adjusting every 6 months thereafter
DThe loan can be paid off in 2 to 6 years
Explanation
A 2/6 cap means the rate cannot increase more than 2% at any single adjustment period, and the total increase over the life of the loan cannot exceed 6% above the initial rate. Cap structures protect borrowers from extreme payment increases.
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