Which rate typically applies after the teaser period ends on an ARM?

Which rate typically applies after the teaser period ends on an ARM?

• A. Teaser Rate
• B. Note Rate
• C. Fully Indexed Rate
• D. APOR

Answer: (C)

When an ARM moves past its initial teaser period, the rate isn’t the promotional teaser rate or the initial note rate but the fully indexed rate. The fully indexed rate is determined by adding the loan’s fixed margin to the current index. The index is a published rate that moves with market conditions, while the margin stays constant for the loan. So if the current index is, say, 3% and the margin is 2%, the fully indexed rate becomes 5%. The teaser rate only applies during the initial period; after it ends, the rate adjusts to reflect the latest index plus margin. APOR is a separate benchmark used for disclosures and some regulatory calculations, not the rate that applies after the teaser.

When an ARM moves past its initial teaser period, the rate isn’t the promotional teaser rate or the initial note rate but the fully indexed rate. The fully indexed rate is determined by adding the loan’s fixed margin to the current index. The index is a published rate that moves with market conditions, while the margin stays constant for the loan. So if the current index is, say, 3% and the margin is 2%, the fully indexed rate becomes 5%. The teaser rate only applies during the initial period; after it ends, the rate adjusts to reflect the latest index plus margin. APOR is a separate benchmark used for disclosures and some regulatory calculations, not the rate that applies after the teaser.