What impact might an economic downturn have on a borrower’s fixed-rate mortgage?
A. It might cause a borrower’s payments to go up.
B. It might cause a borrower’s payments to go down.
C. It has no impact because a fixed-rate mortgage cannot change.
D. It has no impact because the economy does not affect interest rates.
Answer Explanation for Question: What impact might an economic downturn have on a borrower’s fixed-rate mortgage?
According to its name, a fixed-rate mortgage has an interest rate that remains the same for the duration of the loan. As opposed to fixed-rate mortgages, adjustable-rate mortgages start with low, fixed rates but fluctuate throughout the loan term. The economy will not impact your fixed-rate mortgage since the interest rate is fixed. The economy, however, will substantially affect an adjustable-rate mortgage, resulting in a large payment shock if the rate rises.
The adjustable-rate mortgage offers flexibility and savings in the short and medium term, but most people choose a fixed-rate mortgage. Approximately 60% of people choose a fixed-rate mortgage. Most of the people prefer a fixed-rate mortgage because they are predictable. In the case of an adjustable-rate mortgage, there is no way to predict what you will pay each year, or even over the long run. Fixed-rate mortgages, on the other hand, offer a certain level of stability.
A fixed-rate mortgage lets you know exactly how much you will pay, so you won’t experience payment shock. Planning your financial future is easier when you have a fixed-rate mortgage.