Loan Officer Practice Exam 2025 – Comprehensive All-in-One Guide for Exam Success!

To determine the maximum possible interest rate for Joe's adjustable-rate mortgage (ARM), we start with the initial rate of 6%. The rate cap of 2/6 indicates two things:

1. The first number (2) refers to the maximum increase in the interest rate at the time of the first adjustment. This means that after the initial period, the interest rate can rise by a maximum of 2%. This would bring the interest rate up to 8% after the first adjustment.

2. The second number (6) signifies the maximum cumulative increase over the life of the loan. Therefore, after all adjustments throughout the term of the loan, the rate can increase by six percentage points in total.

So, if we take the initial rate of 6% and add the full 6% potential increase allowed by the cap, this results in a maximum possible interest rate of 12% over the life of the loan.

The assumption here is that the index upon which the ARM is based allows for the full cap amount to be utilized systematically at each adjustment period. Therefore, the correct answer aligns with the calculations of the rate increases allowed by the stated caps and confirms that the maximum possible interest rate Joe could face is indeed