Which mortgage feature would be most beneficial for a borrower expecting significant income increases over the next five years?
Correct Answer
B) Variable rate with prepayment privileges
Prepayment privileges let a borrower put extra money against the principal as income rises, cutting interest costs and shortening the time to pay off the loan. A variable-rate mortgage adds flexibility, since breaking it early usually costs less than breaking a fixed-rate mortgage.
Why This Is the Correct Answer
Prepayment privileges let the borrower apply future raises directly to principal, which saves interest and shortens the amortization. Pairing them with a variable rate gives further flexibility if the borrower later wants to restructure.
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