Florida · Chapter 13 of 19
Types of Mortgages and Sources of Financing
ARMs, amortized and other mortgage types, FHA and VA loans, qualifying ratios, primary lenders, the secondary market, lending laws, and mortgage fraud.
35-minute read · Built for the Sales Associate Exam
Adjustable-Rate Mortgages
An ARM's rate changes with an index (such as SOFR or the Treasury yield) that the lender does not control. The margin is the lender's fixed markup and stays the same for the life of the loan. Fully indexed rate = index + margin. Example: index 4.25% + margin 2.50% = 6.75%. Caps limit changes: a periodic (adjustment) cap limits each change, and a lifetime cap limits the total increase over the start rate. With a 2% periodic and 5% lifetime cap on a 5% start rate, the first adjustment cannot exceed 7% and the rate can never exceed 10%. A payment cap without a rate cap can cause negative amortization, where unpaid interest is added to the balance.
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