In an adjustable-rate mortgage (ARM), what is the interest rate known as at the time of closing?

In an adjustable-rate mortgage (ARM), what is the interest rate known as at the time of closing?

• A. Initial Interest Rate
• B. Market Rate
• C. Fixed Rate
• D. Cap Rate

Answer: (A)

In an adjustable-rate mortgage (ARM), the interest rate at the time of closing is referred to as the initial interest rate. This is the starting rate that is set for the loan and is typically lower than the fixed interest rates available for conventional fixed-rate mortgages. The initial interest rate is crucial because it is often set for a specific period before adjustments occur based on an underlying index. After the initial period, the rate can fluctuate according to the terms defined in the mortgage agreement, usually tied to a specific index plus a margin. Understanding this concept helps borrowers know what to expect regarding their payments and how their loan may change over time. The distinction helps in comparing ARMs to other types of loans, emphasizing the unique nature of rate adjustments associated with ARMs.

In an adjustable-rate mortgage (ARM), the interest rate at the time of closing is referred to as the initial interest rate. This is the starting rate that is set for the loan and is typically lower than the fixed interest rates available for conventional fixed-rate mortgages. The initial interest rate is crucial because it is often set for a specific period before adjustments occur based on an underlying index.

After the initial period, the rate can fluctuate according to the terms defined in the mortgage agreement, usually tied to a specific index plus a margin. Understanding this concept helps borrowers know what to expect regarding their payments and how their loan may change over time. The distinction helps in comparing ARMs to other types of loans, emphasizing the unique nature of rate adjustments associated with ARMs.