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ARM Caps

Mortgage Library: Ask a Mortgage Related Question: Answers: ARM Caps

Question:

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?

H.H.
Lynnwood
Washington

Answer:

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.

While your rate can also adjust down, it will not go below the original start rate.

I hope this answers your question regarding the ARM and the caps on an ARM loan.

Thank you,

Kevin Louderback
America One Finance
www.teknowise.com


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