An interest-only mortgage has a rate adjustment cap of 2% per adjustment period and a lifetime cap of 6%. If the initial rate was 4% and the index has increased significantly, what is the maximum rate possible at the first adjustment?
Correct Answer
A) 6%
With a 2% per adjustment period cap and an initial rate of 4%, the maximum rate at the first adjustment would be 6% (4% + 2%). The periodic adjustment cap limits how much the rate can increase at each adjustment, regardless of how much the index has moved.
Why This Is the Correct Answer
With a 2% per adjustment period cap and an initial rate of 4%, the maximum rate at the first adjustment would be 6% (4% + 2%). The periodic adjustment cap limits how much the rate can increase at each adjustment, regardless of how much the index has moved.
More Mortgage Knowledge Questions
A borrower is comparing two loan offers: Loan A has no points and 4.5% interest rate, Loan B has 2 points and 4.0% interest rate. The loan amount is $400,000. How much will the borrower pay upfront for the points on Loan B?
A lender charges a 1% origination fee on all loans. For a borrower obtaining a $250,000 mortgage, what is the maximum origination fee that can be charged without violating the points and fees test under the ATR/QM rule for a first-lien mortgage?
Under what circumstances can a Qualified Mortgage include a prepayment penalty?
A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
People Also Study
Federal Mortgage-Related Laws
23% of exam
Mortgage Loan Origination Activities
25% of exam
Ethics, Fraud & Consumer Protection
17% of exam
Uniform State Test Content
12% of exam
Previous Question
A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
Next Question
During the underwriting process, what does the term 'seasoning' refer to?