The purpose of a rate cap with an adjustable rate mortgage is to:
A)minimize interest costs.
B)prevent changes in the amount of the monthly payment.
C)increase negative amortization.
D)restrict the amount by which the interest rate can increase or decrease during the ARM term.
E)lower the escrow account.

Question

Quizplus · Accepted Answer

A rate cap in an adjustable-rate mortgage (ARM) is designed to limit the amount by which the interest rate can increase or decrease during the loan term, protecting borrowers from drastic changes in their interest payments.

The Purpose of a Rate Cap with an Adjustable Rate