Final answer:
The assertion that government-backed mortgages usually charge higher interest rates is false; they may offer lower down payments but require mortgage insurance, potentially increasing the overall cost of the loan.
Step-by-step explanation:
The statement that government-backed mortgages may require lower down payments than conventional mortgages but usually charge higher interest rates is False. Government-backed mortgages like FHA loans typically offer lower down payments, sometimes as low as 0-3.5%, which is attractive to many potential home buyers.
However, it is important to note that these loans usually require the borrower to pay for mortgage insurance, which can increase the overall cost of the loan. Conventional wisdom suggests following the 20% rule for down payments to avoid mortgage insurance, but this can be challenging for many people to achieve.
When a government makes it cheaper and easier for banks to issue home loans, as seen with subprime loans offered in the past, borrowers can access loans with minimal down payments. These loans often come with conditions, such as low initial payments that increase over time or the expectation that buyers will refinance when housing prices rise.
Furthermore, lenders charge higher interest rates when they have less confidence in a borrower's ability to repay the loan. The idea is to recoup more of the loan earlier in the repayment schedule. Therefore, the cost of a mortgage, the required down payment, the interest rate, and additional fees like mortgage insurance are all factors that potential homebuyers must consider when evaluating loan options.