### What is a defining feature of a fixed-rate mortgage? - [x] The interest rate remains the same for the life of the loan - [ ] The interest rate adjusts semi-annually - [ ] Loan payments are interest-only for the term of the loan - [ ] The loan is paid off with a balloon payment at the end of the term > **Explanation:** A fixed-rate mortgage ensures that the interest rate remains the same throughout the life of the loan, providing borrowers with stable and predictable monthly payments. This is different from adjustable-rate or balloon mortgages where the interest rate or payments can change over time. ### What is a typical term length for a fixed-rate mortgage? - [ ] 5 years - [x] 15 or 30 years - [ ] 50 years - [ ] 7 years > **Explanation:** The most common terms for fixed-rate mortgages are 15 and 30 years. Although other term lengths are available, such as 10, 20, or even 40 years, 15- and 30-year terms are the standard options provided by most lenders. ### Why might a borrower choose a 15-year fixed-rate mortgage over a 30-year one? - [ ] To have lower monthly payments - [ ] To incur higher interest costs over the life of the loan - [x] To build equity faster - [ ] To have a variable interest rate > **Explanation:** Borrowers may opt for a 15-year fixed-rate mortgage to build equity in their home more quickly. Although the monthly payments are higher than a 30-year mortgage, the total interest paid over the life of the loan is generally lower, which saves the borrower money in the long term. ### Why are monthly payments more affordable with longer-term fixed-rate mortgages? - [ ] Because the interest rate is higher - [x] Because the loan amount is spread out over more years - [ ] Because fewer payments are required - [ ] Because the loan is interest-only > **Explanation:** Longer-term fixed-rate mortgages, such as 30-year loans, spread the loan amount over a greater number of years, thereby reducing the amount of each monthly payment compared to shorter-term loans. This makes monthly payments more affordable for many borrowers. ### What is one advantage of fixed-rate mortgages compared to adjustable-rate mortgages? - [ ] Lower initial interest rates - [x] Stable monthly payments - [ ] Payment flexibility - [ ] Initial lower monthly payments > **Explanation:** Fixed-rate mortgages provide the advantage of stable monthly payments throughout the life of the loan. Unlike adjustable-rate mortgages, which can result in fluctuating payments due to interest rate changes, fixed-rate loans offer predictability and financial stability. ### How do interest rates for 15-year fixed-rate mortgages typically compare to 30-year fixed-rate mortgages? - [ ] Higher for 15-year terms - [x] Lower for 15-year terms - [ ] The same as 30-year terms - [ ] There is no consistent pattern > **Explanation:** Interest rates for 15-year fixed-rate mortgages are typically lower than those for 30-year or longer-term loans. This is because lenders view shorter-term loans as less risky due to the shorter time frame for repayment. ### What distinguishes fixed-rate mortgages from balloon mortgages? - [ ] Fixed-rate mortgages have variable interest rates - [ ] Balloon mortgages offer lower monthly payments - [x] Fixed-rate mortgages are paid in full at the end of their term - [ ] Balloon mortgages have longer terms > **Explanation:** Unlike balloon mortgages, which require a large "balloon" payment at the end of the term, fixed-rate mortgages are fully amortized over the life of the loan and are completely paid off by the end of the term through regular monthly payments. ### Why might new fixed-rate mortgages have slightly higher interest rates initially, but become less expensive over time compared to adjustment-rate mortgages? - [ ] Due to government subsidies - [x] Because fixed interest rates provide stability while adjustable rates may increase - [ ] Because lenders favor fixed-rate mortgages - [ ] Due to tax advantages > **Explanation:** While new fixed-rate mortgages might have slightly higher interest rates initially compared to adjustable-rate mortgages (ARMs), over time they can become less expensive if market interest rates rise. Fixed rates provide stability and protect borrowers from future rate increases that can affect ARMs. ### How do fixed-rate mortgages aid in financial planning for homeowners? - [x] By providing predictable and stable monthly payments - [ ] By offering higher interest rates - [ ] By fluctuating with market conditions - [ ] By requiring balloon payments > **Explanation:** Fixed-rate mortgages help with financial planning by providing predictable and stable monthly payments throughout the life of the loan, allowing borrowers to budget effectively and avoid surprises that come with fluctuating interest rates in adjustable-rate mortgages. ### What effect do market fluctuations have on fixed-rate mortgages? - [ ] Significant changes to monthly payments - [ ] Reduction in the loan amount - [x] No effect on the interest rate - [ ] Immediate changes to the loan term > **Explanation:** Market fluctuations do not affect the interest rate of fixed-rate mortgages; the rate remains constant for the entire term of the loan, providing stability for the borrower regardless of changes in the broader economic environment.