What is the actual interest rate charged during the third year of a "2/2/6" ARM with a margin of 2.5%?

In a "2/2/6" Adjustable Rate Mortgage (ARM), the structure denotes specific adjustments to the interest rate over the life of the loan. The "2/2/6" means that the interest rate can increase by a maximum of 2% each time it adjusts, can increase a maximum of 2% every subsequent adjustment after the first one, and that there is a maximum lifetime cap of 6% over the initial rate.

To determine the actual interest rate during the third year, we need to consider the initial rate at the start of the loan, as well as how the adjustments apply. If we assume the initial rate (the starting point) is determined to be 5% (common for illustrative calculations), the rate adjustments based on the "2/2/6" cap would apply as follows:

• In the first year, the rate can adjust up to 2% higher, so the maximum would be 7%.

• For the second year, the rate can again increase by a maximum of 2% from the previous adjustment, leading to a maximum of 9% if the previous year was at the maximum of 7%.

• In the third year, the rate can be reassessed based on the