Finance
The 'index' in an adjustable-rate mortgage (ARM) is:
AThe lender's profit margin added to the loan rate
BA published interest rate benchmark (e.g., SOFR or Treasury rate) that determines rate adjustments✓ Correct
CThe initial fixed-rate period
DThe maximum rate the loan can reach
Explanation
The index is a published benchmark interest rate that serves as the basis for ARM rate adjustments. Common indices include SOFR (Secured Overnight Financing Rate) and various Treasury rates.
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Key Terms to Know
Title Insurance
Insurance protecting against financial loss from defects in a property's title that existed before closing but were unknown at the time of purchase.
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.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Chain of TitleThe sequential record of all transfers of ownership for a piece of property from the original patent holder to the present owner.
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