ARMS Questions and Answers
When an ARM has a 2/6 cap, this means
the rate cannot increase more than 2% in any year or more than 6% over the term of the loan.
Which of the following is NOT a commonly used index for ARMs?
The Federal Reserve Board's Federal Funds Rate
Which of the fo...
ARMS Questions and Answers
When an ARM has a 2/6 cap, this means - answer the rate cannot increase more
than 2% in any year or more than 6% over the term of the loan.
Which of the following is NOT a commonly used index for ARMs? - answer The
Federal Reserve Board's Federal Funds Rate
Which of the following is the slowest moving index among those commonly used for
ARMs? - answer COFI slowest. LIBOR is the quickest
An ARM rate adjustment will take into account which of the following? - answer Index
rate, margin and cap
The lowest payment option for an option ARM is - answer minimum payment.
Which of the following is NOT one of the commonly used payment options offered with
the option ARM? - answer Fixed index rate
The interest rate for an ARM will change periodically based on - answer changes in
index
A low introductory rate on an adjustable rate mortgage is called a(n) - answer Teaser
Rate
An ARM has a current rate of 4.50%. It has a 1/5 cap and a margin of 2%. If the current
T-bill rate of 3-1/8% is its index rate, what would the new ARM rate be when it is
adjusted? - answer The rate would be equal to the lower of the index rate plus
margin or the current rate plus cap. (To add fractions and decimals, you can divide the
top number by the bottom number in the fraction to get a decimal, or you can multiply
the decimal by the bottom number of a fraction to get the top number.)
For example, 1/8 = 1 ÷ 8 = .125; or .125 x 8 = 1 (.125 = 1/8)
3-1/8% (index rate) + 2% (margin) = 5-1/8% ARM rate
4.50% (current rate) + 1% (cap) = 5.50% The rate can be increased to 5-1/8 percent.
A 1/5 cap indicates a change of no more than 1% at one time and no more than 5%
over the term of the loan.
The term "margin" is used frequently when describing terms for an adjustable rate loan.
The "margin" is - answer the amount the lender adds to a selected index rate.
Which of the following best describes negative amortization? - answer The result of
principal and interest payments not covering all of the interest being charged.
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