What does a 5/1 ARM mean in mortgage lending?
Correct Answer
B) Fixed interest rate for 5 years, then adjusts annually
A 5/1 ARM (Adjustable-Rate Mortgage) has a fixed interest rate for the first 5 years, after which the rate adjusts once per year based on a specified index plus a margin. The '5' refers to the initial fixed period and the '1' refers to how often the rate adjusts thereafter.
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Closing costs are the fees and expenses paid by the buyer and seller at the closing of a real estate transaction, beyond the purchase price. They typically range from 2-5% of the purchase price.
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
The debt-to-income ratio (DTI) compares a borrower's monthly debt obligations to their gross monthly income. It is used by lenders to determine how much mortgage a borrower can afford.
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