Question

For example, if you see a cap rate described as 5/2/6, then the interest rate cannot increase more than:

A) 5% for the initial adjustment
B) 2% for subsequent adjustments
C) 6% over the life of the loan
D) 5% over the life of the loan
E) 2% over the life of the loan

Answer 1

In a cap rate described as 5/2/6, the interest rate of an adjustable-rate mortgage cannot increase more than 5% for the initial adjustment, 2% for subsequent adjustments, and 6% over the life of the loan.

Step-by-step explanation:

If you see a cap rate described as 5/2/6, this refers to the limitations on how much the interest rate of an adjustable-rate mortgage (ARM) can change. Specifically, the first number indicates the maximum increase for the initial adjustment, which would be 5% (A).

The second number represents the cap on any subsequent adjustments, which would be 2% (B). The third number is the maximum increase over the life of the loan, in this case, 6% (C). Therefore, the interest rate cannot increase more than 6% over the life of the loan.