A 30-year 1/1 ARM has an initial rate of 4%. In the future the rate will reset to 250 basis points above the LIBOR index subject to a 2% cap on the initial rate change, 3% cap on annual rate changes thereafter and 4% lifetime maximum cap on increases over the initial interest rate (i.e. 2/3/4 rate cap structure). Suppose at the first reset, the LIBOR was 2%. What is the maximum interest rate the borrower can be charged at the second reset?

6.5%

7%

7.5%

8%