A bank advertises a 3/1 arm at 7.85% with a 3/9 cap. What is the maximum interest rate can be charged during the fifth year?

A 3/1 arm at 7.85% will have the interest adjusted after 3 years. A 3/9 cap means that the interest is going to be adjusted after 3 years but only up to 9%. The maximum interest rate that can be charged during the 5th is simply the simply of the interests of two conditions.

7.85% + 9% = 16.85%