Question

A bank advertises a 3/1 ARM at 7.85% with a 3/9 cap.

What is the maximum interest rate that can be charged during the fifth year?

Answer 1

first 3 years is 7.85

then it can go up 3 points each year until it reaches 9 points

Answer 2

y1: 7.85
y2: 7.85
y3: 7.85
y4: 7.85 + 3
y5: 7.85 + 3 + 3

Answer 3

it can only go up 9 points total is what i meant to say :)