Finance
In South Dakota, which of the following is a key difference between a 'fixed-rate mortgage' and an 'adjustable-rate mortgage' (ARM)?
AFixed-rate mortgages can only be used for primary residences
BA fixed-rate mortgage maintains the same interest rate for the entire loan term, while an ARM's rate changes periodically✓ Correct
CARMs always start with higher rates than fixed-rate mortgages
DFixed-rate mortgages are only available for 30-year terms
Explanation
A fixed-rate mortgage has an interest rate that remains constant for the entire loan term, providing payment certainty. An ARM's rate is fixed initially then adjusts periodically based on a market index, creating payment uncertainty but often starting with lower initial rates.
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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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