Caps on ARMs

Unlock all questions

This demo includes only 20 questions. Upgrade to access hundreds of questions, flashcards, exam simulations, and disable ads.

Full question bankExam simulationsFlashcards
From $25.99Unlock all

Prepare for the Utah Mortgage PLM Exam. Study with flashcards and multiple choice questions, with each question providing hints and explanations. Gear up for test day!

Multiple Choice

Caps on ARMs

Explanation:
Caps on ARMs limit how much the interest rate or the monthly payment can change. Since an ARM’s rate moves with an index, caps provide safety by restricting how large those moves can be at each adjustment (periodic caps) and over the loan’s life (lifetime caps). Some loans may also cap how much the payment can change, even if the rate could rise more. That’s why this concept is best described by stating that caps limit the amount the rate or payment may change. The other ideas describe when adjustments occur, having a fixed-rate loan, or guaranteeing a minimum payment, which aren’t what caps do.

Caps on ARMs limit how much the interest rate or the monthly payment can change. Since an ARM’s rate moves with an index, caps provide safety by restricting how large those moves can be at each adjustment (periodic caps) and over the loan’s life (lifetime caps). Some loans may also cap how much the payment can change, even if the rate could rise more. That’s why this concept is best described by stating that caps limit the amount the rate or payment may change. The other ideas describe when adjustments occur, having a fixed-rate loan, or guaranteeing a minimum payment, which aren’t what caps do.

More Multiple Choice Questions
Subscribe

Get the latest from Passetra

You can unsubscribe at any time. Read our privacy policy