Question 8

The borrower would prefer the mortgage rate of 11% for 25 years.

Choosing a mortgage with a longer term, such as 25 years, typically results in lower monthly payments, even if the interest rate is slightly higher. In this case, the borrower would benefit most from the 11% rate over 25 years.

A) 10% for 20 years

This option has a lower interest rate than the correct answer but a shorter term. While this will result in higher monthly payments compared to a longer term, it is less favorable for a borrower seeking to minimize monthly payments.

B) 10% for 25 years

Although this option has a lower interest rate, it is not the best choice for the borrower. The 25-year term would provide lower monthly payments compared to a shorter term, but the rate is still higher than the 11% option in the correct answer.

C) 11% for 20 years

This option offers a higher interest rate than the correct answer and a shorter term, which would lead to higher monthly payments. The combination of a 20-year term and an 11% rate makes this choice less attractive for someone looking to minimize monthly expenses.

D) 11% for 25 years

This option is ideal for the borrower as it offers the longest term combined with a manageable interest rate. The extended period allows the borrower to spread the loan amount over more payments, resulting in the lowest possible monthly payment.

Conclusion

The best choice for the borrower seeking the lowest monthly payments is the 11% rate for 25 years. This option balances a longer repayment period with a manageable interest rate, effectively reducing the monthly financial burden compared to all other options. Other choices either have a shorter term or higher interest rates, leading to higher monthly payments.