Final answer:
The 5/6 in a 5/6 ARM refers to an adjustable-rate mortgage where the '5' is the initial five-year fixed interest rate period and the '6' is the frequency of rate adjustments every six months thereafter. The 2/6 caps are limits on the interest rate changes, with a 2% initial adjustment cap and a 6% lifetime cap.
Step-by-step explanation:
The term 5/6 ARM with 2/6 caps relates to a type of adjustable-rate mortgage (ARM) in the finance and housing industry. In this context, the 5/6 represents the interest rate adjustment intervals. Specifically, the '5' denotes that the initial fixed interest rate period is for five years, after which the rate is adjustable. The '6' indicates that once the fixed period ends, the interest rate can adjust every six months. The 2/6 caps are limits on how much the interest rate can change. The first '2' refers to the initial adjustment cap, meaning the rate can only increase or decrease by a maximum of 2% for the first adjustment period. The second '6' is the lifetime cap, which means that the interest rate cannot increase or decrease by more than 6% over the life of the loan compared to the original rate.