Question

Lucy has just obtained a five-year fixed-rate mortgage to buy her first home. The mortgage is amortized over 30 years. Which of the following statements is most correct?

A	Lucy’s payments won’t change for the next 30 years.

B	Lucy’s payments won’t change for the next 5 years.

C	Lucy’s payments will increase as the term of the mortgage increases.

D	Lucy’s payments will decrease as the term of the mortgage increases.

Answer 1

Ans. D ) A fixed rate mortagage is a mortage in which the rate of interest is fixed up to the year mentioned in the above case it is 5 years. After that the lender will switch the mortagage to standard variable rate. Here the option for the mortgage is to accept this or switch to new remortgage deal. The standard variable interest would always be higher than fixed rate as due to increase in the term of mortgages the lender can determine variable rate at their discretion.Hence the payment will decrease as the term of mortagages increases of the time for example increases from five years to 10 years fixed rate mortgage. Hence option D is correct