Finance
A Washington lender offers a '5/1 ARM' loan. This means the interest rate:
AAdjusts every 5 months for 1 year
BIs fixed for 5 years, then adjusts annually thereafter✓ Correct
CCan increase by 5% annually with a 1% lifetime cap
DAdjusts every year with a 5% annual cap
Explanation
A 5/1 ARM has a fixed interest rate for the first 5 years, after which it adjusts once per year (annually) based on a market index plus a margin, subject to periodic and lifetime caps.
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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.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Math Concepts
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