An adjustable rate mortgage (ARM) may cite changes in the interest rate based on market conditions. This information would most likely be found in which clause?

• A. Deed clause.
• B. Escalation clause.
• C. Interest rate cap clause.
• D. Mortgage contingency clause.

Answer: (B)

Rates on an adjustable-rate mortgage change in response to market conditions, and the clause that explains how those changes happen (including limits on how much the rate can move) is the interest rate cap clause. This clause typically outlines the index used, how often adjustments occur, and the caps that limit increases (per adjustment and over the loan’s life). An escalation clause, by contrast, is about increasing a price or terms in response to market competition in a contract, not about how a loan’s rate adjusts. Deed clauses deal with title transfers, and mortgage contingency clauses cover financing conditions. So the information about rate changes would be found in the interest rate cap clause.