Finance
A Wisconsin adjustable-rate mortgage (ARM) initial rate period is 5 years; thereafter the rate adjusts annually. This is called a:
A7/1 ARM
B5/1 ARM✓ Correct
C3/3 ARM
D2/28 ARM
Explanation
A 5/1 ARM has a fixed rate for the first 5 years, then adjusts annually. The first number indicates the fixed period, and the second indicates the adjustment frequency.
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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.
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