FinanceQuestion 78 of 120
The interest rate on an adjustable-rate mortgage (ARM) is typically calculated as:
a.A fixed rate that never changes
b.The seller's asking price divided by twelve
c.The property tax rate
d.An index plus a margin
Explanation
An ARM's interest rate equals a benchmark index plus a fixed margin set by the lender. As the index moves, the rate adjusts at set intervals, often within caps. This contrasts with a fixed-rate mortgage, whose rate stays constant for the loan's life.
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