Question

Help anyone?

A bank advertises a 2/1 ARM at 3.25% with a 2/10 cap.

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

2%

3.25%

9.25%

10%

Answer 1

what does the 2/1 part tell us?

Answer 2

the ARM? :/

Answer 3

arm stands for adjustable mortgage.

the 2/1 notation infromt of it tells us something specific about the term of the loan

Answer 4

*in front

Answer 5

Ohh alrighty. so how do I go on to figure out the interest rate?

Answer 6

the interest rate adjustments is the 2/10 notation .... but thats only after we know what the 2/1 tell sus

Answer 7

okay, go on?

Answer 8

i cant go on until you give me something to work with ... you need to tell me what you think the 2/1 tells us about the terms in the loan

Answer 9

it has to mean something to you ... i can correct you if you are mistaken :)

Answer 10

I have no idea :( could you elaborate it for me?

Answer 11

2/1 tells us WHEN the rates get adjusted.

For the first 2 year, we get the starting rate
for every 1 years after that it get adjusted

the 2/10 cap is used to tell us HOW the rate gets adjusted now

Answer 12

2/10 cap

for every year of adjustment, the rate goes up 2 points
the adjustment cannot exceed 10 points in total

Answer 13

1, start
2, start
3, start +2
4, start +2 +2
5, start +2 +2 +2