An Adjustable Rate Mortgage (ARM) is typically represented with two numbers separated by a slash. The first number indicates the number of years the initial interest rate will remain fixed. The second number indicates how often the interest rate will adjust after the initial fixed period.
Given the descriptions of the ARMs:
- A 6/6 ARM has the interest rate fixed for the first 6 years, then the rate adjusts every 6 years thereafter.
- A 6/1 ARM has the interest rate fixed for the first 6 years, then the rate adjusts every year thereafter.
- A 1/1 ARM has the interest rate fixed for the first year, then the rate adjusts every year thereafter.
- A 1/6 ARM has the interest rate fixed for the first year, then the rate adjusts every 6 years thereafter.
For an ARM where the interest rate stays fixed for 6 years and then be adjusted every year after that, the correct choice is:
B. 6/1 ARM
This is because the first number (6) indicates the initial fixed period is 6 years, and the second number (1) indicates that the interest rate will adjust every year following that initial period.
