What is the maximum interest rate that can be charged at the time of the first adjustment for an adjustable-rate mortgage with a starting interest rate of 4% and a lifetime cap of 7%?

In the context of adjustable-rate mortgages (ARMs), the maximum interest rate that can be charged at the time of the first adjustment is determined by the initial starting rate and the lifetime cap.

In this case, the starting interest rate is 4%, and the lifetime cap is 7%. The lifetime cap indicates the maximum interest rate the borrower will ever have to pay over the life of the loan, which in this scenario is 7%. During the first adjustment period, the interest rate may increase from the initial 4%, but it cannot exceed the lifetime cap of 7%.

Thus, the maximum interest rate at the time of the first adjustment can be no higher than 7%, making this the correct answer. This understanding is crucial for both consumers and mortgage professionals, as it helps convey the limits imposed by loan agreements and statistical expectations concerning interest rates. Understanding how these caps work allows borrowers to better anticipate their potential financial obligations over the life of their loans.