Which ONE of the following loans would most likely have the lowest initial interest rate?

	a traditional adjustable-rate loan which allows the lender to change the interest rate at the end of every year,
	a 30-year fixed rate loan
	a 3/27 hybrid adjustable-rate loan that locks the interest rate for the first 3 years and then allows the lender to change the interest rate at the end of every year for the next 27 years.
	a 10/20 hybrid adjustable-rate loan that locks the interest rate for the first 10 years and then allows the lender to change the interest rate at the end of every year for the next 20 years.

Solutions

Expert Solution

The traditional adjustable-rate loan which allows the lender to change the interest rate at the end of every year is the one which is most likely to have the lowest initial rate. This is because it gives the flexibility to the lender to change the rates every year as compared to

1. Fixed rate loans where there can be no change in interest rates

2. 3/27 loan where interest rates are changable only after 3 years

3. 10/20 loan where interest rates are changable only after 10 years

The increased flexibility enables the lender to charge the least rate on the traditionl Adjustable rate loan where the interest rate can be changed at the end of each year.

jeff jeffy answered 1 year ago

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