General Mortgage KnowledgeQuestion 163 of 400
A 5/1 ARM starts at 3.50%. At the first adjustment the index + margin equals 6.25%, and the initial cap is 2%. What is the new rate?
a.6.25%
b.3.50%
c.5.50%
d.6.00%
Explanation
The initial 2% cap limits the increase: 3.50% + 2% = 5.50%, which is below the 6.25% fully indexed rate. It cannot reach 6.25% this period and does rise above the 3.50% start.
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