How is the Lifetime cap determined on an adjustable-rate loan?

• A. Lifetime Cap % + Initial Rate % = Lifetime
• B. Initial Rate % + Lifetime Cap % = Lifetime
• C. Lifetime Cap % − Initial Rate % = Lifetime
• D. Initial Rate % − Lifetime Cap % = Lifetime

Answer: (A)

The Lifetime cap sets the maximum interest rate the loan can reach over its entire term, and it’s applied by adding a specified cap in percentage points to the initial rate. So the highest possible rate is the initial rate plus the lifetime cap. For example, if the initial rate is 4% and the lifetime cap is 5 percentage points, the maximum rate could go up to 9%. The other options would imply subtracting the cap or mixing the order, which isn’t how caps work—the cap limits increases, not the starting rate.