#1
What is an Adjustable Rate Mortgage (ARM)?
A mortgage with an interest rate that can change periodically
ExplanationInterest rate changes periodically.
#2
What is the initial fixed-rate period in most ARMs?
5 years
ExplanationInitial fixed-rate period typically 5 years.
#3
What is the index in an Adjustable Rate Mortgage (ARM)?
A benchmark interest rate used to determine the ARM interest rate
ExplanationBenchmark rate used for ARM interest rate.
#4
What is a margin in an Adjustable Rate Mortgage (ARM)?
The difference between the index rate and the ARM rate
ExplanationDifference between index rate and ARM rate.
#5
What is the difference between the initial interest rate and the fully indexed rate in an ARM?
The fully indexed rate includes the margin added to the index rate
ExplanationFully indexed rate includes margin added to index rate.
#6
How often can the interest rate adjust in most ARMs?
Every 12 months
ExplanationInterest rate adjusts every 12 months.
#7
What is a cap in an Adjustable Rate Mortgage (ARM)?
The maximum interest rate increase allowed per adjustment period
ExplanationMaximum increase in interest rate allowed.
#8
What is the benefit of an ARM for borrowers in a declining interest rate environment?
Borrowers benefit from lower interest rates over time
ExplanationBorrowers benefit from lower rates over time.
#9
How does a negative amortization occur in an ARM?
When the loan balance increases despite making payments
ExplanationLoan balance increases despite payments.
#10
What is the lifetime cap in an Adjustable Rate Mortgage (ARM)?
The maximum interest rate increase allowed over the loan term
ExplanationMaximum increase in interest rate over loan term.