What is the fully-indexed rate for a one-year ARM with a starting rate of 4.0%, a margin of 3.0%, and an index of 5.0% at adjustment?

To determine the fully-indexed rate for a one-year adjustable-rate mortgage (ARM), you need to combine the index value with the margin. In this scenario, the index is at 5.0%, and the margin is 3.0%.

The fully-indexed rate is calculated by adding the index and the margin together. This means you take the 5.0% index and add the 3.0% margin:

5.0% (index) + 3.0% (margin) = 8.0%.

This resulting 8.0% represents the fully-indexed rate that will be applied to the mortgage at the time of adjustment. Thus, the fully-indexed rate for this one-year ARM is indeed 8%, which corresponds to the correct answer.

Understanding this calculation is critical for interpreting how adjustable-rate mortgages work, as it significantly affects monthly payment amounts following the initial fixed-rate period.