Finance
In Hawaii, which type of loan has an 'interest rate cap' limiting how much the rate can increase per adjustment period?
AA. Fixed-rate mortgage
BB. Adjustable-rate mortgage (ARM)✓ Correct
CC. Interest-only loan
DD. Balloon mortgage
Explanation
ARM caps limit rate increases. A periodic cap limits each adjustment; a lifetime cap limits total increase over the loan's life, protecting borrowers from unlimited rate escalation.
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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.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
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.
Math Concepts
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