Finance
A NH buyer obtaining an adjustable-rate mortgage (ARM) should be particularly aware of the 'index' and 'margin' because:
AThese only affect the initial interest rate
BThe index + margin = the fully indexed rate used to calculate future rate adjustments✓ Correct
CThe margin is a one-time fee at closing
DThe index is set by NH state law and cannot change
Explanation
An ARM's interest rate is calculated as: Index + Margin = Fully Indexed Rate. The index (e.
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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.
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.
Math Concepts
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