Finance
A Mississippi buyer uses an adjustable-rate mortgage (ARM). The initial interest rate is 4% and adjusts annually. After the first adjustment, the rate increases to 5.5%. The borrower's primary risk is:
ATheir equity growing too slowly
BIncreased monthly payments if interest rates rise✓ Correct
CThe lender calling the loan due immediately
DLosing the property tax exemption
Explanation
The primary risk of an ARM is payment shock—when interest rates rise, the borrower's monthly payment increases, potentially making the loan unaffordable.
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