Which of the following is the primary advantage of a fixed-rate mortgage?
Correct Answer
B) Provides stable, predictable monthly principal and interest payments throughout the loan term
A fixed-rate mortgage maintains the same interest rate and principal-and-interest payment for the entire loan term, providing borrowers with predictable monthly payments regardless of market conditions. This is the primary advantage over adjustable-rate mortgages (ARMs), which can fluctuate with market index changes. Fixed-rate loans do not necessarily offer the lowest initial rate, and escrow requirements are determined by the lender, not the loan type.
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Related Topics & Key Terms
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Related Concepts
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.
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