Alabama Real Estate Practice Exam

How often does the interest rate adjust in a standard ARM?

1. Only at the beginning

2. Monthly, semiannually, or annually

3. Every five years

4. Never

The correct answer is: Monthly, semiannually, or annually

A standard ARM, or adjustable-rate mortgage, typically adjusts the interest rate every month, 6 months, or year. This is in contrast to traditional fixed-rate mortgages where the interest rate remains the same throughout the life of the loan. Option A is incorrect because the interest rate does not adjust only at the beginning, it adjusts periodically throughout the loan term. Option C is incorrect because it suggests a specific time frame of five years, which may not be accurate for all ARMs. Option D is incorrect because the whole point of an ARM is that the interest rate can and will adjust over time.