Property Valuation
An adjustable rate's 'index' in an ARM loan typically refers to:
AThe lender's cost of funds only
BA published benchmark rate such as SOFR or Treasury yields to which the margin is added✓ Correct
CThe property's value index
DThe borrower's credit score index
Explanation
An ARM's interest rate is based on a published index (like SOFR, Treasury rates, or LIBOR replacement) plus a margin set by the lender. As the index moves, the rate adjusts accordingly.
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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.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Math Concepts
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