Which statement describes an adjustable-rate mortgage (ARM)?

Which statement describes an adjustable-rate mortgage (ARM)?

• A. The Interest Rate Can Change Periodically Based on an Index
• B. The Rate Is Fixed for the Life of the Loan
• C. It Always Has a Higher Initial Rate Than a Fixed-Rate Loan
• D. It Does Not Require a Promissory Note

Answer: (A)

An adjustable-rate mortgage is defined by a rate that can change periodically based on a benchmark index plus a margin. After an initial period with a fixed rate, the interest rate adjusts at set intervals, and the payments can go up or down depending on how the index moves (often with caps on how much the rate or payment can change). This flexible structure contrasts with a fixed-rate loan, where the interest rate remains the same for the entire term and payments stay constant. And note that a promissory note is required for any mortgage loan, so the idea that one isn’t involved isn’t accurate.

An adjustable-rate mortgage is defined by a rate that can change periodically based on a benchmark index plus a margin. After an initial period with a fixed rate, the interest rate adjusts at set intervals, and the payments can go up or down depending on how the index moves (often with caps on how much the rate or payment can change). This flexible structure contrasts with a fixed-rate loan, where the interest rate remains the same for the entire term and payments stay constant. And note that a promissory note is required for any mortgage loan, so the idea that one isn’t involved isn’t accurate.