Adjustable-rate mortgages

Question

Quizplus · Accepted Answer

Adjustable-rate mortgages (ARMs) do not protect households against higher mortgage payments when interest rates rise; instead, they expose borrowers to the risk of increasing payments. While they can benefit financial institutions by transferring interest rate risk to the borrower, this does not necessarily keep their earnings high when interest rates are falling. Additionally, ARMs have not led to a significant decline in the popularity of fixed-rate mortgages, as many borrowers still prefer the predictability of fixed payments.

Adjustable-Rate Mortgages