A 5/1 ARM mortgage is best described as a loan where:
Correct Answer
B) The interest rate is fixed for the first 5 years, then adjusts once per year based on a market index
A 5/1 ARM (Adjustable-Rate Mortgage) has two key components indicated by the numbers: the '5' means the interest rate is fixed for the first 5 years of the loan, and the '1' means the rate then adjusts once per year (annually) after the fixed period ends. The new rate at each adjustment is calculated by adding a margin (set by the lender) to a benchmark index (such as the Secured Overnight Financing Rate, or SOFR). ARMs typically include periodic and lifetime caps that limit how much the rate can increase at each adjustment and over the life of the loan.
Why This Is the Correct Answer
Why the Other Options Are Wrong
Deep Analysis of This Financing Question
Background Knowledge for Financing
Real World Application in Financing
Common Mistakes to Avoid on Financing Questions
Related Topics & Key Terms
Related Topics:
Key Terms:
More Financing Questions
West Virginia redemption period is:
A cooperative in Manhattan is converting to a condominium. How does this conversion affect existing shareholders with share loans?
The loan-to-value ratio (LTV) is calculated as:
Compliance case Cedar Docket frames the issue this way. A Florida buyer borrows $272,000 on a purchase price of $320,000. What is the loan-to-value ratio?
Which of these activities can the owner of a life estate NOT do?
- → Which of the following is a key benefit of a VA loan for eligible veterans?
- → In Delaware financing, which theory is practiced?
- → Audit memo Cedar Case highlights this Florida rule. The purchase price is $360,000, and the lender will lend 90% of the price. How much cash down payment must the buyer bring?
- → Kevin is told that his co-op purchase will require board approval even though he has financing pre-approval. Why is board approval necessary for cooperative purchases in New York?
- → Tennessee has which redemption period after foreclosure?
- → Foreclosure in Vermont is typically:
- → Mississippi uses which security instrument?
- → Which of the following is NOT required for a valid bill of sale?
- → Deficiency judgments in Alabama are:
- → Sarah Martinez is purchasing a co-op apartment in Manhattan for $750,000. Her lender explains the financing structure for cooperative units. What type of loan will Sarah receive for this co-op purchase?