Finance
An adjustable-rate mortgage (ARM) includes a 'cap' provision that:
ASets a minimum interest rate the lender must charge
BLimits how much the interest rate can increase at each adjustment period and over the life of the loan✓ Correct
CPrevents the lender from calling the loan due
DCaps the borrower's debt-to-income ratio
Explanation
ARM caps limit interest rate increases — periodic caps limit adjustments per period (e.g., 2% per year), and lifetime caps limit total increases over the loan term (e.g., 5% above the initial rate). This protects borrowers from unlimited payment increases.
Related Tennessee Finance Questions
- Negative amortization occurs when:
- A Tennessee borrower's 'net worth' is calculated as:
- In Tennessee, 'private mortgage insurance' (PMI) is typically required when the buyer's down payment is less than:
- A Tennessee homeowner has a $250,000 home and a $175,000 mortgage. What is the owner's equity?
- In Tennessee, a 'hard money loan' is typically characterized by:
- In Tennessee, the 'loan origination process' typically begins with:
- The 'principal balance' of a mortgage loan is:
- A Tennessee borrower takes out a $180,000 mortgage at 6.5% interest. What is the first month's interest payment?
Practice More Tennessee Real Estate Questions
1,500+ questions covering all exam topics. Start free — no signup required.
Take the Free Tennessee Quiz →