A borrower wants to have the lowest monthly payments. Which of the following mortgage rates would the borrower prefer?

Rationale

10% for 25 years offers the lowest monthly payments.

A longer loan term generally results in lower monthly payments, and a lower interest rate will also help minimize those payments. Among the given options, the 10% rate for 25 years provides the most favorable combination of these factors, leading to the lowest monthly payment for the borrower.

A (10% for 20 years) YOUR ANSWER

This option has a shorter loan term of 20 years compared to the 25-year option, which results in higher monthly payments. Although the interest rate is the same, the shorter duration means the borrower will pay off the loan faster, leading to larger monthly installments.

B (10% for 25 years) CORRECT

This choice is optimal for the borrower seeking the lowest monthly payments. The combination of a lower interest rate (10%) and a longer term (25 years) spreads the repayment over more months, significantly reducing the monthly payment amount compared to the other options.

C (11% for 20 years) YOUR ANSWER

This option features a higher interest rate of 11%, which increases the monthly payments, even with a shorter loan term. The higher interest significantly outweighs any potential benefit from the shorter duration, resulting in less favorable monthly payments compared to the 10% for 25 years.

D (11% for 25 years) YOUR ANSWER

While the longer term of 25 years may reduce payments somewhat, the 11% interest rate makes this option less attractive. The increased interest rate results in higher overall costs and monthly payments compared to the preferred option of 10% for 25 years.

Conclusion

Choosing a mortgage with the lowest monthly payments involves balancing interest rates and loan terms. The 10% for 25 years option strikes the best balance, providing the borrower with the lowest monthly payments due to its lower interest rate combined with an extended repayment period. Other options either feature higher interest rates or shorter terms, resulting in higher monthly costs.

A borrower wants to have the lowest monthly payments. Which of the following mortgage rates would the borrower prefer?

10% for 25 years offers the lowest monthly payments.

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