In comparing an adjustable rate mortgage (ARM) with a fixed rate mortgage (FRM):
A) Both the borrower and lender bear more interest rate risk with the ARM than with the FRM.
B) Both the borrower and the lender bear less interest rate risk with the ARM than with the FRM.
C) The ARM borrower bears more interest rate risk, but the ARM lender bears less interest rate risk, than with the FRM.
D) The ARM borrower bears less interest rate risk, but the ARM lender bears more interest rate risk, than with the FRM.

Question

Quizplus · Accepted Answer

In an adjustable rate mortgage (ARM), the interest rate can change over time based on market conditions, which means the borrower faces more uncertainty and risk regarding future payment amounts. Conversely, the lender faces less interest rate risk because the rate can be adjusted to reflect current market rates, unlike with a fixed rate mortgage (FRM) where the interest rate remains constant throughout the life of the loan, locking both parties into the agreed rate regardless of market changes.

In Comparing an Adjustable Rate Mortgage (ARM) with a Fixed