Michigan Real Estate Salesperson Practice Exam 2026 - Free Real Estate License Practice Questions and Study Guide

In an adjustable rate mortgage (ARM), the escalation clause is a key component that provides specific details about how and when interest rates will change over the life of the loan. This clause outlines the conditions under which the loan’s interest rate can adjust, including the frequency of adjustments and any caps on the maximum increase for each adjustment period. Understanding the escalation clause is crucial for borrowers as it directly affects their monthly payments and the overall cost of the loan.

The other choices do not typically contain information about interest rate changes. The loan application mainly focuses on the borrower's financial information and qualifications, while the repayment schedule outlines the payment terms without detailing adjustments to the interest rate. The buyer's disclosure statement is primarily for informing the buyer about significant aspects of the property and terms but does not go into the specifics of rate adjustments specific to the mortgage. Thus, the escalation clause is undoubtedly the correct location for borrowing details related to interest rate changes in an adjustable rate mortgage.