Final answer:
The tolerance for the disclosed APR in an adjustable-rate mortgage (ARM) is a slight error margin of 0.125% or one-eighth of one percentage point.
Step-by-step explanation:
When providing an adjustable-rate mortgage (ARM) to a borrower, a lender must disclose the annual percentage rate (APR) that applies to the loan. The APR must be disclosed within a certain tolerance. For ARMs, the tolerance for the disclosed APR is a slight error margin of 0.125% or one-eighth of one percentage point.
This means that the disclosed APR can deviate from the actual rate by this small amount without resulting in a compliance issue. This tolerance exists to account for the variability and complexity involved in estimating an APR for an ARM loan, where the rate changes over time.