Question

What does the term '3/1 ARM with 3/6 caps' refer to?

1) Adjustable Rate Mortgage with a fixed interest rate for 3 years and adjustable interest rate for the remaining term
2) Adjustable Rate Mortgage with a fixed interest rate for 1 year and adjustable interest rate for the remaining term
3) Adjustable Rate Mortgage with a lifetime interest rate cap of 3% and 6% for the initial adjustment period
4) Adjustable Rate Mortgage with a lifetime interest rate cap of 3% and 6% for subsequent adjustment periods

Answer 1

An ARM with 3/1 caps refers to an Adjustable Rate Mortgage with a fixed interest rate for 3 years and adjustable interest rate for the remaining term. The '3/6 caps' means that there is a cap of 3% for the interest rate adjustment in any given year, and a cap of 6% for the interest rate adjustment over the lifetime of the loan.

Step-by-step explanation:

An ARM with 3/1 caps refers to an Adjustable Rate Mortgage with a fixed interest rate for 3 years and adjustable interest rate for the remaining term. The '3/1' indicates that the initial fixed-rate period is 3 years, after which the interest rate can adjust annually. The '3/6 caps' means that there is a cap of 3% for the interest rate adjustment in any given year, and a cap of 6% for the interest rate adjustment over the lifetime of the loan.