Finance
A Hawaii buyer obtains a loan where the interest rate is fixed for the first 5 years then adjusts annually. This is:
AA fixed-rate mortgage
BAn adjustable-rate mortgage (ARM)
CA 5/1 ARM✓ Correct
DA balloon mortgage
Explanation
A 5/1 ARM has a fixed interest rate for the first 5 years and then adjusts annually based on a benchmark index. This is a specific type of adjustable-rate mortgage.
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Key Terms to Know
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.
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.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Math Concepts
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