New Jersey Real Estate Exam Practice Question
What type of mortgage loan is likely to be tied to a publicly available index that is mutually acceptable to the lender and the borrower?
Correct Answer: C
Rationale: An adjustable rate mortgage (ARM) is linked to a publicly available index, such as the LIBOR or Treasury rates, allowing interest rates to fluctuate based on market conditions. This mutual agreement benefits both lender and borrower by reflecting current economic trends.
A renegotiable rate mortgage typically allows for periodic adjustments, but it does not necessarily tie to a public index. A graduated payment mortgage features fixed payments that increase over time, lacking the variable nature of an ARM. Freddie Mac is not a mortgage type but rather a government-sponsored enterprise that facilitates mortgage lending, making it irrelevant to the question.
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