Finance
A buyer obtains an adjustable-rate mortgage (ARM). What does the 'index' represent in an ARM?
AThe fixed margin added to the index to determine the borrower's rate
BThe maximum amount the rate can increase in any one adjustment period
CThe benchmark interest rate, such as SOFR, to which the loan rate is tied✓ Correct
DThe initial introductory rate offered by the lender
Explanation
In an ARM, the index is the benchmark interest rate (such as SOFR) that fluctuates with market conditions. The borrower's actual rate is the index plus the lender's margin.
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