Question

Which of the following is the primary reason that a mortgage lender may allow a rate modification to an existing mortgage holder with a fixed-rate mortgage?

A) the lender receives a one-time fee
B) the borrower may obtain a new mortgage from another lender
C) the borrower receives a lower interest rate
D) the borrower does not have to pay closing costs

Answer 1

The primary reason a mortgage lender may allow a rate modification on a fixed-rate mortgage is because the borrower could potentially get a new mortgage with a lower rate from another lender. Moreover, if inflation falls unexpectedly, an adjustable-rate mortgage could lead to reduced mortgage payments for the homeowner. The primary reason a mortgage lender may allow a rate modification to an existing mortgage holder with a fixed-rate mortgage is B) the borrower may obtain a new mortgage from another lender.

Step-by-step explanation:

The primary reason a mortgage lender may allow a rate modification to an existing mortgage holder with a fixed-rate mortgage is B) the borrower may obtain a new mortgage from another lender. Lenders might offer a rate modification to retain their customers, as they risk losing them to competitors offering lower rates. This is especially true in a mortgage environment where rates are changing and borrowers are shopping around for better deals.

If inflation falls unexpectedly by 3%, a homeowner with an adjustable-rate mortgage (ARM) would likely see a decrease in their mortgage payments. Since ARMs have interest rates that vary with market conditions, including the rate of inflation, a reduction in inflation can lead to a decrease in the interest rates charged on the loan.