Certified Residential Appraiser Practice Exam

What type of mortgage has an interest rate that remains fixed for the duration of the loan?

1. Adjustable Rate Mortgage

2. Fixed Rate Mortgage

3. Graduated Payment Mortgage

4. Interest-Only Mortgage

The correct answer is: Fixed Rate Mortgage

A fixed-rate mortgage is characterized by an interest rate that remains unchanged for the entire term of the loan. This stability provides homeowners with predictable monthly payments, making budgeting easier over the life of the loan. Homeowners benefit from locking in a rate, protecting them from fluctuations in the market interest rates that could occur in the future. This is particularly advantageous in a rising interest rate environment, as it ensures that the borrower's cost of borrowing remains stable regardless of economic changes. In contrast, adjustable-rate mortgages can have fluctuating interest rates based on market conditions, which can lead to changes in required monthly payments. Graduated payment mortgages often start with lower payments that increase over time, while interest-only mortgages allow borrowers to pay only the interest for a set period before beginning to pay down the principal, both of which do not offer the fixed terms associated with a fixed-rate mortgage.