Finance
A New Mexico buyer obtains an adjustable-rate mortgage (ARM) with a '5/1' structure. This means:
AThe rate is fixed for 1 year then adjusts every 5 years
BThe rate is fixed for 5 years then adjusts every 1 year✓ Correct
CThe loan has a 5-year term
D5% initial rate adjusting to 1% after the first year
Explanation
A 5/1 ARM has a fixed interest rate for the first 5 years and then adjusts annually based on a specified index plus a margin.
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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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