An ARM loan has reached its lifetime interest rate cap. The index continues to rise above the capped rate. What happens to the borrower's interest rate at the next adjustment period?
Correct Answer
B) The rate remains at the lifetime cap maximum
Once an ARM reaches its lifetime cap, the interest rate cannot increase further, regardless of how high the index rises. The rate remains at the lifetime cap maximum until the index falls below that level.
Why This Is the Correct Answer
Once an ARM reaches its lifetime cap, the interest rate cannot increase further, regardless of how high the index rises. The rate remains at the lifetime cap maximum until the index falls below that level.
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