Finance
What is an 'interest rate cap' in an adjustable-rate mortgage and how does it protect Pennsylvania borrowers?
AA cap on the total interest that can be charged over the life of the loan
BA limitation on how much the interest rate can increase per adjustment period, per year, and over the life of the loan✓ Correct
CA maximum interest rate set by Pennsylvania law for residential mortgages
DA cap on the number of times the rate can adjust during the loan term
Explanation
ARM caps limit interest rate increases to protect borrowers: (1) periodic cap — maximum increase per adjustment (e.g.
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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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