New Jersey Real Estate Practice Exam Free 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, which fluctuates over time. This allows both lenders and borrowers to agree on a rate that reflects current market conditions.
In contrast, a renegotiable rate mortgage involves periodic adjustments based on the lender's discretion, not a public index, making it less transparent. A graduated payment mortgage features fixed payments that increase over time, lacking the variable component tied to an index. Freddie Mac is a government-sponsored enterprise that provides funding for mortgages but is not a type of mortgage itself.
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