Finance
A Florida investor purchases a small commercial property and finances it with a '5/1 ARM.' This loan structure means:
AThe interest rate is fixed for the first 5 years and then adjusts annually✓ Correct
BThe loan term is 5 years with 1-year balloon payment options
CThe rate is tied to 5 different indices averaged over 1 year
D5% of the loan is forgiven for every year the investor holds the property
Explanation
A 5/1 ARM has a fixed interest rate for the first 5 years, then adjusts annually (every 1 year) thereafter based on a specified index plus margin, subject to periodic and lifetime caps. The '5' represents the initial fixed period and '1' represents how often it adjusts after that. 5/1 ARMs often offer lower initial rates than 30-year fixed mortgages, attracting investors and short-term buyers.
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