81. What type of mortgage loan is likely to be tied to a publicly available index that is mutually acceptable to the lender and the borrower?
Answer: C
Adjustable rate mortgage.
An adjustable rate mortgage (ARM) is typically tied to a publicly available index that is mutually acceptable to both the lender and the borrower. This allows the interest rate on the loan to fluctuate based on changes in the index, which can affect monthly payments.
A) Renegotiable rate mortgage.
A renegotiable rate mortgage involves periodic adjustments to the interest rate but is not necessarily linked to a publicly available index. Instead, the terms are often renegotiated at specific intervals, making it distinct from the structure of an adjustable rate mortgage.
B) Graduated payment mortgage.
A graduated payment mortgage features a fixed interest rate that starts lower and increases over time, which does not involve any variability based on a public index. This type of mortgage provides a predictable payment structure rather than one that fluctuates with market rates.
C) Adjustable rate mortgage.
An adjustable rate mortgage is designed to vary its interest rate based on a publicly available index, making it the correct choice. This linkage allows the loan’s interest rate to adjust at predetermined intervals, reflecting changes in the broader economic environment.
D) Freddie Mac.
Freddie Mac is a government-sponsored enterprise that provides liquidity to the mortgage market but is not a type of mortgage loan. It does not directly pertain to the concept of being tied to a publicly available index like an adjustable rate mortgage.
Conclusion
The adjustable rate mortgage is definitively the correct answer as it is specifically structured to fluctuate based on a publicly available index. All other options either do not have this index linkage or pertain to different characteristics of mortgage loans, thereby failing to meet the criteria outlined in the question.