Loan tied to index interest rate changes

Real estate loans that are tied to an index and in which the interest rate may change during the term of the loan are called:

  1. FNMA loans
  2. ARM loans
  3. FHA loans
  4. negatively amortized loans

The answer is B.  ARM (or Adjustable Rate Mortgage) loans are tied to a neutral index that is out of the control of the lender or the borrower.  This means that the interest rate may change during the term of the loan.