What is the defining feature of a fixed-rate mortgage?

What is the defining feature of a fixed-rate mortgage?

• A. The interest rate fluctuates with the market
• B. The interest rate remains constant throughout the loan term
• C. The loan amount increases over time
• D. The borrower is required to pay additional fees for stability

Answer: (B)

The defining feature of a fixed-rate mortgage is that the interest rate remains constant throughout the loan term. This means that the borrower will pay the same interest rate for the entire period of the loan, which provides predictability in monthly mortgage payments. This stability allows homeowners to budget effectively, as they will not experience increases in monthly payments due to fluctuating interest rates. In contrast, options that mention fluctuating interest rates are characteristic of adjustable-rate mortgages, where the rate can change based on market conditions. The notion of a loan amount increasing over time does not apply to fixed-rate mortgages, as these loans typically have a set principal amount. Furthermore, while some mortgages may have associated fees, the concept of paying additional fees specifically for stability is not a defining characteristic of fixed-rate mortgages.

The defining feature of a fixed-rate mortgage is that the interest rate remains constant throughout the loan term. This means that the borrower will pay the same interest rate for the entire period of the loan, which provides predictability in monthly mortgage payments. This stability allows homeowners to budget effectively, as they will not experience increases in monthly payments due to fluctuating interest rates.

In contrast, options that mention fluctuating interest rates are characteristic of adjustable-rate mortgages, where the rate can change based on market conditions. The notion of a loan amount increasing over time does not apply to fixed-rate mortgages, as these loans typically have a set principal amount. Furthermore, while some mortgages may have associated fees, the concept of paying additional fees specifically for stability is not a defining characteristic of fixed-rate mortgages.