The Mortgage Interest Rate Remains Constant | CTFA Exam Answer

D

The correct answer to this question is D. Fixed rate mortgage.

A mortgage is a loan used to finance the purchase of a property. The interest rate on a mortgage refers to the amount of interest that the borrower will pay to the lender for the use of the loaned money. Mortgage interest rates can be either fixed or adjustable.

A fixed rate mortgage is a type of mortgage where the interest rate remains the same for the entire term of the loan. This means that the borrower's monthly payment remains constant throughout the life of the loan, regardless of changes in the economy or the lender's cost of funds. Fixed rate mortgages typically have terms of 15, 20, or 30 years.

On the other hand, an adjustable rate mortgage (ARM) is a type of mortgage where the interest rate can change over time. ARMs typically have an initial fixed rate period, after which the interest rate can adjust up or down based on changes in a specified index, such as the prime rate or the London Interbank Offered Rate (LIBOR). This means that the borrower's monthly payment can fluctuate, making budgeting and financial planning more challenging.

A graduated payment mortgage (GPM) is a type of mortgage where the initial payments are lower than the standard payments on a traditional fixed rate mortgage, but increase over time. GPMs are designed to help borrowers who expect their income to increase in the future, but who cannot afford the standard payments on a traditional fixed rate mortgage in the present.

An adjustable term mortgage (ATM) is a type of mortgage where the term of the loan can be adjusted over time. This means that the borrower can choose to extend or shorten the term of the loan, which can affect the monthly payment amount.

In summary, the mortgage described in the question has a fixed interest rate that remains the same throughout the term of the loan, making it a fixed rate mortgage (D).