Finance
A Nebraska homeowner's adjustable-rate mortgage has a 5/1 ARM structure. This means:
A5% maximum rate adjustment with 1-year fixed period
BFixed rate for 5 years, then adjusts annually✓ Correct
CRate adjusts 5 times over the loan's life, then fixed for 1 year
D5 year balloon with 1 year extension option
Explanation
A 5/1 ARM has a fixed interest rate for the first 5 years, then adjusts annually based on an index plus margin. This provides initial payment stability with lower initial rates, followed by rate variability.
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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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