Finance
A Florida adjustable rate mortgage (ARM) has an initial rate of 3.5% and is tied to the 1-year Treasury index with a 2% margin. If at adjustment the index is at 4%, what is the new interest rate?
A4%
B5.5%
C6%✓ Correct
D2%
Explanation
ARM rate = Index Rate + Margin = 4% + 2% = 6%. The margin is a fixed amount added to the index to determine the fully indexed rate. The margin is set at loan origination and doesn't change. Subject to periodic and lifetime caps, the rate adjusts based on the current index plus the margin.
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