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On an adjustable mortgage, do borrowers always prefer smaller (i.e. tighter) rate caps that limit the amount the contract interest rate can increase in any given year or over the life if the loan? Explain why or why not.
Borrower preference is dependent, at elast in part, on their expectations of future interest rates. Borrowers choosing ARMs with price caps are charged a higher initial interest rate, a higher margin, more upfront costs, or a combination of the three. The borrower must consider these factors