General Mortgage KnowledgeQuestion 104 of 400
An ARM currently at 4.00% reaches its first adjustment. The fully indexed rate is 7.00%, but the initial adjustment cap is 2%. What is the new rate?
a.7.00%
b.4.00%
c.5.00%
d.6.00%
Explanation
The initial cap limits the increase to 2%, so the new rate = 4.00% + 2% = 6.00%, even though the fully indexed rate is 7.00%. It cannot jump to 7.00% because of the cap, and it does rise above 4.00%.
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