Finance
An adjustable-rate mortgage (ARM) in Alaska that has a '5/1' structure means:
AThe rate is fixed for 5 years then adjusts every year thereafter✓ Correct
BThe rate adjusts 5 times over the first year then is fixed
CThe loan term is 5 years with a 1-year balloon
DThe rate can increase by a maximum of 5% in any 1-year period
Explanation
A 5/1 ARM has a fixed interest rate for the first 5 years, then adjusts annually after that. The first number refers to the initial fixed period and the second number refers to the adjustment interval.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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