Question

Which of the following statements best describes the relation between interest rates offered on comparable fixed-rate and adjustable rate mortgage (ARM) loans?

1) The interest rates offered on fixed-rate mortgage loans are generally higher than those offered on adjustable rate mortgage (ARM) loans.
2) The interest rates offered on fixed-rate mortgage loans are generally lower than those offered on adjustable rate mortgage (ARM) loans.
3) The interest rates offered on fixed-rate mortgage loans are generally the same as those offered on adjustable rate mortgage (ARM) loans.
4) The interest rates offered on fixed-rate mortgage loans are not related to those offered on adjustable rate mortgage (ARM) loans.

Answer 1

The interest rates offered on fixed-rate mortgage loans are generally lower than those offered on adjustable rate mortgage (ARM) loans.

Step-by-step explanation:

The statement that best describes the relation between interest rates offered on comparable fixed-rate and adjustable rate mortgage (ARM) loans is: 2) The interest rates offered on fixed-rate mortgage loans are generally lower than those offered on adjustable rate mortgage (ARM) loans.

An adjustable-rate mortgage (ARM) is a type of loan in which the interest rate varies with market interest rates. This means that if market interest rates increase, the interest rate on an ARM loan will also increase, resulting in higher monthly payments for the borrower. On the other hand, a fixed-rate mortgage has a set interest rate for the entire loan term, typically 15 or 30 years. Since there is less risk for the lender with a fixed-rate mortgage, the interest rates offered on these loans are generally lower compared to ARM loans.