Question

Which of the following is a disadvantage of ARMs?

A. They are great for people who are purchasing homes for the short
term.

B. Payments may go up.

C. Payments are fixed for the initial period.

D. Homeowners can avoid locking in a high rate.

Answer 1

One of the disadvantages of ARM is that payments may go up.

Option: (B)

Step-by-step explanation:

• Adjustable-rate mortgages (ARMs) are the flexible loan system for the buyer of houses.

• For the certain amount of period, the buyer can have the fixed interest and then it gets changed.

• For example, 5/1 ARM means the house buyer has the fixed interest rate for 5 years and then it gets changed according to the index.

• So, the main disadvantage of ARMs is that the payments may rise after the fixed period.