ECO 212 Week 4 DQ 2 - 7529

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3number
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  • Posted on: Wed 11 Apr, 2012
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Request Description

Identify the conditions that must exist that make adjustable and fixed-rate mortgages favorable to lenders and borrowers.  Which would you suggest for a homebuyer at this time and why?

An adjustable rate is favorable to a borrower because the initial interest rate is lower than the current daily rate, it could be the difference between being able to buy now and having to wait. An adjustable rate mortgage could be risky. The adjustable rate is favorable to a lender because it brings in another customer who may not otherwise borrow, and provides them with a marketable loan to sell on the secondary loan market. Also, they would find it favorable if you were paying more interest in the future.Fixed rate is advantageous to borrowers because the rate/payment can be depended upon for the entire term of the loan (allows for accurate budgeting, etc.). Fixed rates are advantageous to lenders for much the same reason...steady payment. In theory, the longer into the loan term the better able the borrower will be to repay (house payment stays the same while income may rise). Most people want fixed rate loans, so it stands to reason that a lender would favor offering them in an effort to appeal to more potential borrowers as well.
 
Depending on ones reason for purchasing a home either loan could be suggested. Interest rates as low as they are today, I would suggest a fixed rate mortgage.  Rates are so low, locking in a fixed rate as low as 3% for the life of the loan would be everyone's dream. 


Solution Description

Identify the conditions that must exist that make adjustable and fixed-rate mortgages favorable to lenders and borrowers.  Which would you suggest for a homebuyer at this time and why?