Question

Which of the following is the correct definition of payment shock?
O A. A homeowner has difficulty paying the initial monthly payments
on an ARM.
B. The new payment after the initial fixed-rate period is much higher
than the homeowner expected.
C. A homeowner pays more than required on his or her monthly
mortgage payments.
D. A homeowner is unwilling to make payments.

Answer 1

The correct definition of a payment shock is B. The new payment after the initial fixed-rate period is much higher than the homeowner expected.

What Is a Payment Shock?

A payment shock refers to a dramatic or large increase in an individual's debts or payment obligations that may cause them to default on their loans.

Payment shocks can occur for the following reasons:

• Change of fixed interest rate
• Expiration of temporary initial interest rate
• Increase is ARM's indexed interest rate.

If a debtor is suddenly obliged to pay more in monthly debt than they can afford from their income, a payment shock has occurred.

The correct definition of a payment shock is B. The new payment after the initial fixed-rate period is much higher than the homeowner expected.

Learn more about Adjustable Rate Mortgages (ARM) at https://brainly.com/question/1287808