What is an adjustable-rate mortgage (ARM)?
Why A loan whose interest rate changes periodically based on a market index Is Correct
Answer B: A loan whose interest rate changes periodically based on a market index
Exam Tip: Finance
Finance questions often involve calculations. Master the T-bar method, understand the difference between conventional and government-backed loans, and know key ratios like LTV and DTI.
Key Finance Terms in This Question
People Also Study
Related California Questions
- A loan in which the interest rate changes periodically based on a financial index is called a(n):Finance
- Which type of mortgage loan has a fixed interest rate for an initial period, then adjusts periodically based on a market index?Finance
- A borrower takes out a $350,000 mortgage at 7% annual interest for 30 years. The monthly P&I payment factor per $1,000 borrowed at 7% for 30 years is $6.653. What is the monthly payment?Real Estate Math
- A borrower takes out a $300,000 mortgage at 6% annual interest. What is the first month's interest payment?Real Estate Math
- A borrower pays $1,610/month in principal and interest on a 30-year fixed mortgage at 6.5%. If the original loan amount was $254,000, how much total interest is paid over the life of the loan?Real Estate Math
- An adjustable-rate mortgage (ARM) has a rate cap structure of 2/2/6. What does the '6' represent?Finance
- A borrower's monthly gross income is $8,500. The lender uses a 43% maximum DTI. The borrower has $850 in existing monthly debt payments. What is the maximum allowable monthly mortgage payment?Real Estate Math
- What term describes the process by which a lender reduces the risk of an ARM by capping how much the interest rate can change at each adjustment period and over the life of the loan?Finance
Key Terms to Know
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
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.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
Math Concepts
Study This Topic
Practice More California Real Estate Questions
1,500+ questions covering all exam topics. Start free — no signup required.
Take the Free California Quiz →