Which of the following best describes the primary characteristic of a fixed-rate mortgage?
Correct Answer
B) Has a consistent interest rate and monthly payment throughout the entire loan term
A fixed-rate mortgage is characterized by an interest rate that remains constant for the life of the loan, resulting in predictable, stable monthly principal and interest payments. This makes budgeting easier for borrowers. Fixed-rate mortgages do not necessarily carry the lowest rate, may require escrow accounts, and do not adjust based on market indexes — that is a feature of adjustable-rate mortgages (ARMs).
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An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on market conditions, typically after an initial fixed-rate period. The rate adjustment is tied to a financial index plus a margin.
Closing costs are the fees and expenses paid by the buyer and seller at the closing of a real estate transaction, beyond the purchase price. They typically range from 2-5% of the purchase price.
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
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