Finance
A West Virginia borrower obtains an adjustable-rate mortgage (ARM). The interest rate on an ARM is tied to:
AThe Federal Reserve prime rate set daily
BAn index such as SOFR or the Treasury rate, plus a margin✓ Correct
CThe lender's internal cost of funds only
DThe West Virginia Usury Law maximum rate
Explanation
ARM interest rates are calculated by adding a fixed margin to an index such as SOFR (Secured Overnight Financing Rate) or a Treasury index. The rate adjusts periodically based on the index.
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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.
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.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Math Concepts
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