Finance
A loan in which the interest rate changes periodically based on an index is called a(n):
AFixed-rate mortgage
BAdjustable-rate mortgage (ARM)✓ Correct
CBalloon mortgage
DInterest-only mortgage
Explanation
An adjustable-rate mortgage (ARM) has an interest rate that adjusts periodically based on a specific financial index. ARMs typically offer a lower initial rate that may increase over time.
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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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