Two-step ARM is an adjustable rate mortgage with just two interest rates. One for the first ________ years of the loan and the higher one for the remaining term of the loan:
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A. B. C. D.C
A two-step ARM, as the name implies, is an adjustable rate mortgage with just two interest rates. The interest rate on the mortgage loan is fixed for a certain period of time and then adjusts to a new interest rate for the remaining term of the loan.
Based on the question, we are asked to determine the duration of the first interest rate period for a two-step ARM. The answer choices are:
A. 5 years B. 6 years C. 5 to 7 years D. 3 years
The correct answer is A. 5 years.
This means that for the first 5 years of the loan, the borrower will pay a fixed interest rate. After the 5-year period has passed, the interest rate on the loan will adjust to a higher rate for the remaining term of the loan.
It is important to note that two-step ARMs are not as common as other types of adjustable rate mortgages such as the 5/1 ARM or the 7/1 ARM, which have a fixed interest rate for the first 5 or 7 years respectively and then adjust annually. Two-step ARMs are typically used by borrowers who anticipate a change in their financial situation in the near future and plan to refinance or sell their home before the end of the fixed interest rate period.
In summary, a two-step ARM is an adjustable rate mortgage with just two interest rates. The first interest rate is fixed for a specified period of time, and the second interest rate is higher and remains fixed for the remaining term of the loan. The correct answer to the question is A. 5 years.