What does a 5/1 ARM mean for a borrower?
Correct Answer
B) The interest rate is fixed for 5 years, then adjusts annually
A 5/1 ARM (Adjustable Rate Mortgage) has an interest rate that remains fixed for the first 5 years of the loan, then adjusts once per year after that based on a specified index plus a margin. This structure offers initial payment stability with the possibility of rate changes in later years.
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In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
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