Final answer:
A 2/6 ARM is an adjustable-rate mortgage that has a fixed interest rate for the first two years and adjusts every six months thereafter. The maximum rate of a 2/6 ARM starting at 4% would depend on the lifetime cap specified in the loan agreement. Without the cap details, the exact max rate cannot be determined.
Step-by-step explanation:
A 2/6 ARM (adjustable-rate mortgage) is a type of loan used to purchase a home where the interest rate is fixed for the first two years and then can adjust every six months thereafter. The '2' represents the initial period in years where the interest rate is fixed, while '6' refers to the number of months between adjustments after the fixed-rate period ends. When you have a 2/6 ARM with an initial rate of 4%, there will typically be a cap on how high the interest rate can go. This cap is often referred to as the 'lifetime cap' which limits the maximum interest rate increase over the life of the loan.
If the ARM started at 4% and has a maximum cap on interest rate increases, the max rate could be determined by that cap. For example, if the lifetime cap is 6%, the maximum interest rate could reach 10% (4% + 6%), depending on market conditions and the terms of the loan. However, without specific details on the lifetime cap for this ARM, we cannot provide the exact maximum rate.
Adjustable-rate mortgages can be attractive due to lower initial interest rates compared to fixed-rate loans, but they also carry the risk of rising rates over time.