Question

A consumer has an ARM with an initial rate of 6% and a rate cap of 2/6. What's the highest her interest rate could be over the life of the loan?

Answer 1

The highest interest rate the consumer could have over the life of the loan is 8%.

Step-by-step explanation:

The adjustable-rate mortgage (ARM) has an initial rate of 6%.

The rate cap of 2/6 means that the interest rate cannot increase by more than 2% in any given adjustment period and cannot exceed 6% over the life of the loan.

So, the highest interest rate the consumer could have over the life of the loan is 8%.