What is the exam-ready distinction?
| Roadmap post | 191 of 500 |
|---|---|
| Official syllabus topic | Financing: Fixed-Rate and Adjustable-Rate Loans |
| Official PSI area | Financing |
| Published weight | 10% of the 100-question national portion |
| Source edition | PSI Georgia Candidate Information Bulletin dated July 1, 2026 |
| Content checked through | August 2, 2026 |
The Rule
PSI publishes a weight for the complete official area, not a guaranteed count for this individual comparison. Use the source, document, actor, event, and timing stated in the question before applying a memorized definition.
Side-by-side comparison
Read across each row. The terms are deliberately compared on identical dimensions so the difference remains clear when the exam hides the vocabulary inside a scenario.
| Decision dimension | Fixed-rate | Adjustable-rate |
|---|---|---|
| Interest rate | Contract rate remains fixed for the term | Can change after the initial period under the note |
| Rate formula | Stated rate | Index plus margin, subject to caps and other terms |
| Payment stability | Principal-and-interest structure is predictable when fully amortized | Payment can change when rate changes and may be affected by other features |
| Main risk | Initial rate may be higher than an ARM offer | Future rate and payment uncertainty |
Decision rule
Georgia-specific distinction
Worked example
Scenario. A 5/1 ARM has a five-year introductory rate and then adjusts annually based on an index plus a fixed margin, within caps.
Reason it through. The first number describes the initial fixed period and the second the later adjustment interval.
Answer. The rate is fixed for five years and can adjust once each year afterward under the formula and caps.
Common exam traps
- Adding the index and margin during the teaser period without reading terms
- Treating margin as the moving component
- Confusing rate caps with payment certainty
- Reading 5/1 as five adjustments per year
Original practice questions with detailed explanations
These are original instructional questions mapped to the July 1, 2026 PSI outline. They are not copied from PSI or any live examination. Choose an answer before opening the explanation.
Question 1Which ARM component normally moves with market conditions?
- A. The margin after closing
- B. The original principal
- C. The deed recording fee
- D. The index
Show answer and explanation →
Answer: D. The index
The index is correct. A fixed-rate mortgage keeps the contract interest rate fixed. An adjustable-rate mortgage changes after its initial period using the stated index plus margin, subject to adjustment and lifetime caps and the loan's other terms. Caps limit movement; they do not promise that the payment will never rise. The rejected choices are The margin after closing; The original principal; The deed recording fee. Each misses the legal category or controlling fact stated in the rule.
Question 2A 5/1 ARM has a five-year introductory rate and then adjusts annually based on an index plus a fixed margin, within caps.
- A. The rate is fixed for five years and can adjust once each year afterward under the formula and caps.
- B. The rate changes five times every year.
- C. The margin changes monthly with the index.
- D. The lifetime cap guarantees the payment stays constant.
Show answer and explanation →
Answer: A. The rate is fixed for five years and can adjust once each year afterward under the formula and caps.
The first number describes the initial fixed period and the second the later adjustment interval. Therefore, The rate is fixed for five years and can adjust once each year afterward under the formula and caps. The other choices fail because they replace those controlling facts with a neighboring concept or an unsupported absolute rule.
Question 3What should a candidate identify first when comparing Fixed-Rate Versus Adjustable-Rate Mortgage?
- A. The option with the longest definition, without classifying the facts.
- B. Read the initial period, index, margin, adjustment frequency, initial and periodic caps, lifetime cap, and payment consequences.
- C. A memorized Georgia rule, even when the question asks for a national concept.
- D. The answer that sounds most favorable to the buyer, regardless of the document or event.
Show answer and explanation →
Answer: B. Read the initial period, index, margin, adjustment frequency, initial and periodic caps, lifetime cap, and payment consequences.
Read the initial period, index, margin, adjustment frequency, initial and periodic caps, lifetime cap, and payment consequences. That sequence identifies the legal category before the label. Choosing by definition length ignores the facts, importing a Georgia rule can answer the wrong jurisdictional question, and favoring one party substitutes sympathy for classification.
Mastery tracking
Mark this distinction mastered only when every statement is true.
- Define every compared term without using the other term as the definition.
- Rebuild the comparison table from memory.
- State the decision rule and Georgia distinction without notes.
- Solve the worked example after changing one controlling fact.
- Explain why every trap and distractor is tempting but wrong.
- Answer all three original questions correctly in mixed practice on a later day.
Recommended next lesson
Continue with Conventional Versus FHA Versus VA Versus USDA Loans. Continue to roadmap comparison 192.
Return to the complete exam-concept library or the Financing hub.