In an ARM loan, the distance between the borrower's rate and the index is called the:

Question

Quizplus · Accepted Answer

The distance between the borrower's rate and the index in an ARM loan is called the margin. The margin is a fixed percentage added to the index rate to determine the borrower's interest rate.

Option A: Cap refers to a limit on how much the interest rate on an ARM loan can adjust during a specific time period or over the life of the loan.

Option B: Adjustment refers to the change in the interest rate on an ARM loan when it goes through a periodic adjustment.

Option D: Teaser is a low initial interest rate on an ARM loan, typically offered for a short period at the beginning of the loan term.

In an ARM Loan, the Distance Between the Borrower's Rate