Which feature is fixed on a standard fixed-rate mortgage?
Correct Answer
B) The note interest rate
Why this is correct: The defining characteristic of a standard fixed-rate mortgage (FRM) is that the note interest rate specified in the loan contract remains unchanged for the entire loan term. This fixes the scheduled principal and interest (P&I) portion of the borrower's payment. Why the other choices are wrong: The choice "Property-tax assessments" is incorrect because property taxes are set by local governments and can change annually, affecting the escrow portion of the total payment. The choice "Homeowners-insurance premiums" is incorrect because insurance premiums are set by the insurer and can also change at renewal. The choice "Every component of the total escrowed payment" is incorrect; while the P&I is fixed, the total payment including escrow for taxes and insurance can fluctuate as those costs change. Exam tip: On a fixed-rate loan, only the principal and interest (P&I) is truly fixed. The total payment can still change if the loan has an escrow account for variable items like taxes and insurance.
Why This Is the Correct Answer
Why this is correct: The defining characteristic of a standard fixed-rate mortgage (FRM) is that the note interest rate specified in the loan contract remains unchanged for the entire loan term. This fixes the scheduled principal and interest (P&I) portion of the borrower's payment. Why the other choices are wrong: The choice "Property-tax assessments" is incorrect because property taxes are set by local governments and can change annually, affecting the escrow portion of the total payment. The choice "Homeowners-insurance premiums" is incorrect because insurance premiums are set by the insurer and can also change at renewal. The choice "Every component of the total escrowed payment" is incorrect; while the P&I is fixed, the total payment including escrow for taxes and insurance can fluctuate as those costs change. Exam tip: On a fixed-rate loan, only the principal and interest (P&I) is truly fixed. The total payment can still change if the loan has an escrow account for variable items like taxes and insurance.
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