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In an adjustable-rate mortgage,
A) none of these apply.
B) interest rate changes are tied to state guidelines.
C) interest rates are set by state law.
D) interest rate changes are tied to an economic index

Ask by Harper Mann. in the United States
Mar 31,2025

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The correct answer is D) interest rate changes are tied to an economic index.

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Adjustable-rate mortgages (ARMs) are fascinating financial tools! The unique twist is that they offer lower initial interest rates, typically fixed for a certain period. After that, the interest rate adjusts periodically based on a specified economic index, such as the LIBOR or the Treasury index. This means your payments can change over time, reflecting fluctuations in the economy.
When considering an ARM, it’s essential to be aware of potential pitfalls. One common mistake is underestimating how much your monthly payments could rise after the initial fixed period ends. Regularly reviewing your financial situation and market trends can help you prepare for these changes and avoid any unexpected financial strain.

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