Which of the following terms describes the limit on interest rate changes over the life of an ARM?

The term that accurately describes the limit on interest rate changes over the life of an Adjustable Rate Mortgage (ARM) is the "Lifetime Rate Cap." This refers to the maximum amount that the interest rate can increase during the entire duration of the loan. It ensures that borrowers are protected against extreme fluctuations in their interest rate, making it easier for them to predict their long-term financial obligations.

In the context of an ARM, which typically has rates that can adjust at specified intervals based on market conditions, the lifetime cap serves as a safeguard against significant rate increases that could occur due to changing economic conditions. For borrowers, understanding the existence of this cap is crucial as it can influence their choice of loan and their budget planning over the life of the mortgage.

While other terms mentioned in the choices also relate to interest rates, they focus on different aspects:

• A payment cap limits only the monthly payment rather than the interest rate itself.

• An initial rate cap restricts how much the interest rate can increase at the first adjustment.

• A periodic cap dictates the maximum increase that can occur at each adjustment period, rather than the total changes over the life of the loan.

Thus, the lifetime rate cap is a critical feature of ARMs, providing a long-term safety net