Which of the following statements about interest rates according to the material covered in the lecture are TRUE:A comparison rate includes expected interest expenses, upfront fees and ongoing fees on a $150,000 loan over a 25 year loan term.If variable interest rates are expected to increase in the future, choosing a fixed-interest rate for a new home loan will normally reduce your interest expenses compared to choosing a variable interest rate on a new home loan.Question 10AnswerNeither of the statements are true (both are false)Only statement 1 is trueOnly statement 2 is trueBoth statements are true (neither are false)
Question
Which of the following statements about interest rates according to the material covered in the lecture are TRUE:A comparison rate includes expected interest expenses, upfront fees and ongoing fees on a $150,000 loan over a 25 year loan term.If variable interest rates are expected to increase in the future, choosing a fixed-interest rate for a new home loan will normally reduce your interest expenses compared to choosing a variable interest rate on a new home loan.Question 10AnswerNeither of the statements are true (both are false)Only statement 1 is trueOnly statement 2 is trueBoth statements are true (neither are false)
Solution
To answer this question, we need to understand each statement:
- A comparison rate includes expected interest expenses, upfront fees and ongoing fees on a $150,000 loan over a 25 year loan term.
This statement is TRUE. A comparison rate is designed to help you understand the overall cost of a loan based on several relevant factors, rather than just the interest rate. It includes the interest rate, as well as the fees and charges relating to the loan (both upfront and ongoing), reduced to a single percentage figure.
- If variable interest rates are expected to increase in the future, choosing a fixed-interest rate for a new home loan will normally reduce your interest expenses compared to choosing a variable interest rate on a new home loan.
This statement is also TRUE. If you expect that interest rates will rise in the future, locking in a fixed rate now can save you money in the long run. This is because your interest rate will remain the same over the term of the loan, regardless of changes in the market interest rates.
So, the answer is: Both statements are true (neither are false).
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