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Mortgage Library: Ask a Mortgage Related Question: Answers: ARM Caps
Please explain what the Caps mean. I am interested in a 3-year ARM and the LO told me the caps were 3/2/6? What do these caps mean in a clear explanation that I can understand?
What this means is that your loan would be a 30 year loan. The payments will be based on repayment over the next thirty years. For the first 3 years, the rate will be fixed at whatever your starting rate is. After that, your loan will adjust once per year on the anniversary date of the loan. The caps mean that on the date of your first adjustment, your loan could adjust by as much as 3% above the original rate. Every year after that, it can
adjust by as much as 2%, and the rate will never get more than 6% above the original start rate.
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