Management Notes

Reference Notes for Management

What impact might an economic downturn have on a borrower’s fixed-rate mortgage?

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.

The Correct Answer for the given question is option C. It has no impact because a fixed-rate mortgage cannot change.

 

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.

The only feasible purpose of financial management is

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