An ARM with 2/6 interest rate caps and a 2.50 margin has a contract rate of 5% for the first year.At the end of year one index value is 4.00%.The contract rate for year two is:

Question

Quizplus · Accepted Answer

The new rate is calculated by adding the index value (4%) to the margin (2.50%), resulting in 6.50%. The 2/6 cap limits the rate increase to 2% per year, but since the calculated rate (6.50%) is within this limit, it becomes the new rate.

An ARM with 2/6 Interest Rate Caps and a 2