General Education Development (GED) Practice Exam

A homeowner is attempting to choose between several mortgage loans for a $200,000 home. Which of the following would have the lowest monthly payment?

1. A 30-year fixed rate mortgage at 6%

2. A 15-year fixed rate mortgage at 7%

3. A 30-year fixed rate mortgage at 12%

4. A 15-year fixed rate mortgage at 12%

The correct answer is: A 30-year fixed rate mortgage at 6%

In this scenario, the 30-year fixed-rate mortgage at 6% would indeed result in the lowest monthly payment for the homeowner. The length of the mortgage term and the interest rate are two critical factors that influence the monthly payment amount. A longer loan term, such as 30 years, allows the borrower to spread the repayment of the principal and interest over a more extended period. This generally results in lower monthly payments compared to shorter-term loans, even if the interest rate is slightly higher. In this case, the 30-year mortgage at 6% combines a relatively long term with a moderate interest rate, leading to lower monthly obligations. The other options reflect shorter terms or higher interest rates that increase the monthly payment significantly. A 15-year mortgage typically has higher monthly payments because the same amount must be paid off in half the time. Furthermore, the option with a 30-year mortgage at 12% has a much higher interest rate, leading to considerably higher payments compared to the 6% option. The combination of a long term and a lower interest rate makes the 30-year fixed-rate mortgage at 6% the most affordable monthly payment choice for the homeowner.