When you borrow using an adjustable rate mortgage (ARM), your initial interest rate is low but will vary as the benchmark interest rate specified in your loan varies over time. Which of the following statements is true about an ARM loan?

Question

BlackTom AI · Accepted Answer

The question asks about how an adjustable rate mortgage (ARM) behaves when the benchmark rate changes. 
Since the answer_options array is empty in the provided data, we only have the single shown option to evaluate: "Your monthly mortgage payment may increase or decrease over time and the amount of the change will depend on the change in the benchmark interest rate."
- Evaluating this statement: In an ARM, the interest rate is tied to a benchmark and can move up or down as that benchmark changes. Because the interest rate governs the monthly payment (through the rate component of the payment calculation), fluctuations in the benchmark typically cause the payment amount to rise or fall accordingly. Therefore, this option correctly captures the core behavior of an ARM: variable payments that reflect changes in the benchmark rate.
- Potential misconceptions to avoid (if other options existed): some questions might erroneously claim that ARM payments always decrease, or that only the principal adjusts while the interest remains fixed, or that adjustments occur on a strict schedule regardless of benchmark movement. These would be inaccurate because, in most ARMs, both the rate and thus the payment can adjust, and adjustments are driven by actual benchmark movements rather than being fixed to a set schedule without regard to rate changes.
- About the missing options: since the dataset provides no alternative statements to compare, we cannot analyze other choices for correctness or incorrectness. In a typical scenario, you would compare each option to the mechanics of ARMs—that payments can go up or down and are a function of benchmark rate changes—then identify which statements align with that mechanism.
- Synthesis: given the described ARM mechanism, the provided statement aligns with the fundamental characteristic of ARM loans, namely that payment variability tracks the benchmark rate changes, causing potential increases or decreases in the monthly payment over time.

MGT 012Y 001 SQ 2025 Week 4 HW - Homes

When you borrow using an adjustable rate mortgage (ARM), your initial interest rate is low but will vary as the benchmark interest rate specified in your loan varies over time. Which of the following statements is true about an ARM loan?

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