Finance
The Federal Reserve influences mortgage interest rates primarily through:
ADirectly setting mortgage rates for all lenders
BAdjusting the federal funds rate, which influences borrowing costs throughout the economy✓ Correct
CRequiring lenders to offer specific loan products
DPurchasing individual home mortgages
Explanation
The Federal Reserve influences mortgage rates indirectly by setting the federal funds rate (the rate banks charge each other for overnight loans), which affects overall borrowing costs.
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Key Terms to Know
Discount Points
Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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