Answered

Which of the following statements is true?


AA 30-year fixed mortgage will always result in the lowest payment.
BYou must have at least a 20% down payment to get a competitive interest rate.
CThe lower your interest rate is, the lower your monthly payments are.
DThe faster you pay off your mortgage, the lower your monthly payments are.

Verified Answer :

Final answer:

The statement that is true is c: 'The lower your interest rate is, the lower your monthly payments are.' Lower interest rates correspond to lower monthly payments as less interest is charged on the principal. Thus, understanding mortgage rates is crucial for financial planning.


Explanation:

Understanding Mortgage Statements

When analyzing the statements provided about mortgages, let's break them down:

  • a. A 30 year fixed mortgage will always result in the lowest payment. This statement is false because while the longer term generally results in lower monthly payments, it might not lead to the lowest overall cost due to the interest accrued over time.
  • b. You must have at least a 20% down payment to get a competitive interest rate. This is misleading. While a 20% down payment can help you avoid Private Mortgage Insurance (PMI) and may help in securing better rates, some lenders offer competitive rates with lower down payments.
  • c. The lower your interest rate is, the lower your monthly payments are. This statement is generally true. A lower interest rate reduces the amount of interest you pay on the principal, leading to lower monthly payments.
  • d. The faster you pay off your mortgage, the lower your monthly payments are. This can be misleading. Typically, faster repayment leads to a higher monthly payment as you're paying off the mortgage in a shorter timeframe.

Among these options, c. stands out as the most accurate statement. It clearly reflects the relationship between interest rates and monthly payments.


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