DECA Personal Financial Literacy (PFL) Practice Exam

The preference for a fixed-rate mortgage arises primarily from the stability it offers in terms of interest rates. When a person selects a fixed-rate mortgage, they agree to a specific interest rate that will remain unchanged throughout the entire duration of the loan, which can often be 15 to 30 years. This consistency allows homeowners to better budget their finances, as they can reliably predict their monthly mortgage payments without worrying about fluctuations in interest rates that can occur with variable-rate loans.

This predictability helps in long-term financial planning, especially in a volatile economic climate where interest rates can rise. Being locked into a fixed rate can provide significant savings over time compared to loans where the interest rate might increase, leading to higher monthly payments.

While other options may touch upon valuable benefits related to mortgages, such as lower payments or government backing, the defining feature that often attracts borrowers to fixed-rate loans is the assurance that their rate will never change, shielding them from market volatility.