Fixed-Rate Mortgages Flashcards
Leading on from the previous section, this one focuses on the opposite side of the interest rate scale, a fixed-rate mortgage. You will be presented with various questions to test your knowledge of interest rates, how to select the right one for your client’s needs and pick out examples from lending scenarios.
There are many types of interest rates that a lender can offer to their applicants. Of the most common options, what is a fixed-rate mortgage?
A. A mortgage loan with a fixed interest rate with the same repayments.
B. A loan with a fixed credit requirement for applicants wanting a mortgage.
C. A loan with a fixed loan amount that an applicant must pay for a set period.
D. A fixed monthly repayment that never changes even if the market does.
E. A & D.
Correct answer: E
E is correct because a lender will offer an applicant a fixed-rate mortgage rate if they are seeking a long-term loan with some repayment consistency for budgeting purposes. A fixed rate mortgage is an essential one where the interest rate is fixed for the whole duration of the loan, although in some agreements it is only for a set period and then it changes after that.
A fixed-rate mortgage is perfect for those that seek a stable increase to their loan each year, but what are the exact benefits of this fixed-rate mortgage?
A. Fixed repayment amounts.
B. No repayment penalties.
C. Great for long-term mortgages.
D. The lender can charge more to keep up with market trends.
E. A, B & C.
Correct answer: E
E is correct because borrowers love the fact, they can see how much they will pay each payment period and budget long-term how much they will need to pay (to keep up with interest increases). Many argue this is the best for long-term loans as it makes it super easy to save and keep up with repayments, there is also no worries about repayment penalties or the lender chagrining more.
What is not a disadvantage of a fixed-rate mortgage?
A. Harder to qualify.
B. Borrowers pay higher monthly repayments.
C. Higher interest rates overall.
D. good for long-term mortgages.
E. Not great for short-term mortgages.
Correct answer: D
D is correct, as a fix-rate mortgage despite its benefits also does have several disadvantages for lenders and borrowers alike. D shows exactly why people love this interest rate as it helps long-term borrowers’ budget and keep up with their repayments, but the downsides include higher interest rates than short-term mortgages, higher repayments, and is harder to obtain.
Despite the fact that a fixed-rate interest rate draws applicants because of its consistency, can borrower choose to turn a fixed-rate mortgage into a flexible one?
A. Yes.
B. No.
Correct answer: A is correct because a fixed-rate mortgage can become flexible as long as both parties (the lender and borrower) are content with the proposed change to a mortgage agreement.
What is an example of a fixed-rate interest rate mortgage from the
examples provided below?
A. A thirty-year loan of $300,000 with an interest rate that remains at 4.5.
B. A five-year loan of $500,000 with an interest rate of 4.5 for two years
then increases.
C. A thirty-year loan of $720,000 with an interest rate that slowly increases
over time.
D. A five-year loan of $655,222 with a ballooning interest rate.
E. A & B.
Answer: E
E is correct, as a fixed-rate interest rate mortgage is one where the interest
remains fixed at a set rate for the whole duration of a mortgage loan, or for
a fixed period before it is adjusted for market conditions. C isn’t correct as
this is an example of a ballooning interest rate, or one that is ARM where
the rate is adjusted to the state of the market. D is straight out a ballooning
interest rate where the rate increases over time.
