Exam 5: Adjustable and Floating Rate Mortgage Loans

With which loan in the above table does the lender have the lowest interest rate risk?

What is the meaning of the following: Interest is capped at 2%/5%.

Which loan in the above table should have the lowest initial interest rate?

ARMs help lenders combat unanticipated inflation changes,interest rate changes,and a maturity gap.

Characteristics of a PLAM include an increasing mortgage payment and an adjusting loan balance tied to an index.

Negative amortization reduces the principal balance of a loan.

The default risk of a FRM is higher than the default risk of an ARM.

Which of the following clauses leads to higher risk for an ARMs lender?

Which of the following descriptions most accurately reflects the risk position of an ARM lender in comparison to that of a FRM lender?

A borrower takes out a 30-year adjustable rate mortgage loan for $200,000 with monthly payments.The first two years of the loan have a "teaser" rate of 4%,after that,the rate can reset with a 5% annual payment cap.On the reset date,the composite rate is 6%.What would the Year 3 monthly payment be?