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An Adjustable Rate Mortgage Contract Quizlet

An Adjustable Rate Mortgage Contract (ARM) is a popular type of home loan that offers borrowers a lower initial interest rate compared to a fixed-rate mortgage. The initial rate is determined by the lender and is usually lower than the current market rate.

While an ARM may be an attractive option for some borrowers, it is important to understand how it works and what risks are involved. This is where Quizlet comes in handy. Quizlet is an online learning platform that offers various study materials, including practice quizzes, flashcards, and study guides.

If you are considering applying for an ARM, taking the “Adjustable Rate Mortgage Contract Quizlet” can help you prepare for the process. Here are some topics that you might want to focus on:

1. How an ARM works

An ARM has an interest rate that changes periodically, usually every six or twelve months. The rate is based on a benchmark index such as the London Interbank Offered Rate (LIBOR) or the Constant Maturity Treasury (CMT). This means that your monthly payment amount can change depending on the current interest rate.

2. The pros and cons of an ARM

The advantage of an ARM is that you can potentially save money on interest payments, especially if you plan to sell or refinance your home before the rate adjusts. However, one of the disadvantages of an ARM is that your monthly payment can increase significantly when the interest rate adjusts. This can cause financial difficulties if you are not prepared.

3. Types of ARM

There are several types of ARM, including the 3/1 ARM, 5/1 ARM, and 7/1 ARM. These numbers represent the initial fixed-rate period and the length of the adjustment periods. For example, a 3/1 ARM has a fixed rate for the first three years and then adjusts annually.

4. The ARM disclosure statement

Before you sign an ARM contract, the lender is required to provide you with an ARM disclosure statement. This document outlines the terms and conditions of the loan, including the initial and future interest rate, the payment amount, and the payment adjustment dates.

Taking the Adjustable Rate Mortgage Contract Quizlet can help you learn more about these topics and prepare you for the loan application process. With proper understanding and preparation, you can make an informed decision on whether an ARM is right for you.