National Real Estate Exam (PSI)FinancingMedium
An adjustable-rate mortgage (ARM) has a margin of 2.75% and is tied to an index currently at 3.5%. What is the fully indexed interest rate?
- A6.25%
- B3.5%
- C5.25%
- D6.5%
Show answer & explanationAnswer & explanation
Correct answer: A. 6.25%
The fully indexed rate equals the index plus the margin: 3.5% + 2.75% = 6.25%.
Why the other options are wrong
- B. This is only the index, not including the margin.
- C. Incorrect sum, does not match the required addition.
- D. Incorrect sum, slightly overstates the total.
ARM Rate Calculation
An adjustable-rate mortgage's interest rate is calculated by adding a fixed margin to a fluctuating index rate.
- Index reflects market conditions and changes periodically
- Margin is a fixed percentage set by the lender
- Rate = Index + Margin
Memory trick: Index plus margin equals what you'll actually pay.