Adjustable-Rate Mortgage (ARM) Quiz

1. What is an adjustable-rate mortgage (ARM)?

A mortgage with a fixed interest rate A mortgage with an interest rate that can change over time A government-backed loan A balloon mortgage

2. What is the initial fixed-rate period of a 5/1 ARM?

1 year 5 years 10 years 30 years

3. What does the "1" represent in a 5/1 ARM?

The loan term How often the rate adjusts after the initial period The interest rate The down payment

4. What is an index rate in an ARM?

The lender's profit margin A market-based rate that ARM rates are tied to The initial interest rate The maximum rate allowed

5. What is a margin in an ARM?

The maximum rate increase The fixed percentage added to the index rate The initial down payment The loan amount

6. What is a hybrid ARM?

An ARM with only adjustable rates An ARM with an initial fixed-rate period followed by adjustments A combination of two different loans A government-backed ARM

7. What is the benefit of an ARM during periods of falling interest rates?

The rate stays the same The rate decreases, lowering monthly payments No benefit The loan is paid off

8. What is payment shock?

A fee for late payments A significant increase in monthly payment when the ARM rate adjusts The initial down payment A prepayment penalty

9. What type of borrower might benefit most from an ARM?

A borrower planning to stay in the home long-term A borrower who plans to sell or refinance within a few years A risk-averse borrower A retiree on fixed income

10. What is a 2/2/5 cap structure in an ARM?

The maximum rate is 2% 2% initial adjustment cap, 2% periodic cap, 5% lifetime cap A 2 year fixed rate with 5% cap The loan term

Adjustable-Rate Mortgage (ARM) Quiz

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