The Purpose of a Rate Cap with an Adjustable Rate

question 48

Multiple Choice

The purpose of a rate cap with an adjustable rate mortgage is to:

• A)minimize interest costs.
• B)prevent changes in the amount of the monthly payment.
• C)increase negative amortization.
• D)restrict the amount by which the interest rate can increase or decrease during the ARM term.
• E)lower the escrow account.

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Definitions:

Mathematical Modeling

The process of creating a mathematical representation of a real-world situation or system to analyze and predict its behavior.

Lead Time

In purchasing systems, the time between recognition of the need for an order and receiving it; in production systems, it is the order, wait, move, queue, setup, and run times for each component.

Inexpensive

Having a low cost or price; not expensive.

Mathematical Model

A representation of a system, process, or relationship using mathematical concepts and language, often used to analyze or predict behavior.