When comparing adjustable-rate mortgages, an MLO must disclose the worst-case scenario. For a 3/1 ARM starting at 2.75% with 2% annual caps, 5% lifetime cap, tied to 1-year Treasury + 2.25% margin, what would be disclosed as the maximum payment scenario?
Correct Answer
B) Payment based on the lifetime maximum rate of 7.75%
Under TRID and ARM disclosure requirements, lenders must provide the worst-case scenario, which shows the payment based on the maximum possible rate the loan could reach. For this ARM, the lifetime cap is 5% above the initial rate (2.75% + 5% = 7.75%), representing the highest possible rate and payment the borrower could face.
Why This Is the Correct Answer
Under TRID and ARM disclosure requirements, lenders must provide the worst-case scenario, which shows the payment based on the maximum possible rate the loan could reach. For this ARM, the lifetime cap is 5% above the initial rate (2.75% + 5% = 7.75%), representing the highest possible rate and payment the borrower could face.
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