what is an advantage of an adjustable-rate mortgage?\na borrower always knows how much to pay the bank each…

what is an advantage of an adjustable-rate mortgage?\na borrower always knows how much to pay the bank each month.\na borrower can purchase a home with little financial risk.\na drop in interest rates may result in lower monthly payments.\na rise in interest rates may result in lower monthly payments.

what is an advantage of an adjustable-rate mortgage?\na borrower always knows how much to pay the bank each month.\na borrower can purchase a home with little financial risk.\na drop in interest rates may result in lower monthly payments.\na rise in interest rates may result in lower monthly payments.

Answer

Brief Explanations:

To determine the advantage of an adjustable - rate mortgage (ARM), we analyze each option:

  • Option A: With an ARM, the interest rate (and thus the monthly payment) can change, so a borrower does not always know the monthly payment. Eliminate A.
  • Option B: ARMs have financial risk because interest rates can rise, leading to higher payments. So a borrower does not purchase a home with little financial risk. Eliminate B.
  • Option C: Adjustable - rate mortgages have interest rates that can adjust. If interest rates drop, the monthly payment (which is based on the interest rate) can also drop. This is a key advantage of an ARM.
  • Option D: If interest rates rise, the monthly payment for an ARM will typically increase, not decrease. Eliminate D.

Answer:

C. A drop in interest rates may result in lower monthly payments.