North Dakota Real Estate Practice Exam

An adjustable-rate mortgage (ARM) is most beneficial to a borrower when interest rates are projected to decrease. In this scenario, the borrower would start with a lower initial interest rate that is typically fixed for a specific period, and as rates decrease, their payments could potentially decrease as well. This can lead to lower monthly payments compared to a long-term fixed-rate mortgage, where the interest rate remains constant despite changes in the market.

If interest rates decrease, the adjustments on the ARM will result in even lower payments over time. This is particularly advantageous for borrowers who can benefit from reduced costs, making the ARM a cost-effective choice. In contrast, if interest rates were to rise, the borrower's payments would increase after the initial fixed-rate period, making the ARM less attractive. Moreover, those who prefer long-term fixed rates or plan to sell the property immediately may not experience the same benefits from the ARM structure, as it is designed to take advantage of fluctuations over a longer period.