Finance
A South Dakota lender offers a 'teaser rate' ARM at 2.5% for the first year, then adjusting annually. A borrower should be concerned about:
APaying too much interest in the first year
BPayment shock when the rate adjusts upward after the teaser period✓ Correct
CThe property losing value due to the low rate
DFederal restrictions on teaser rate mortgages
Explanation
Payment shock occurs when a low teaser rate adjusts to a higher market-based rate, significantly increasing the monthly payment. Borrowers should understand the maximum possible payment after adjustment.
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