Future Business Leaders of America (FBLA) Personal Finance Practice Test

What is a conventional mortgage also referred to as?

1. Adjustable rate mortgage

2. Home equity loan

3. Fixed payment mortgage

4. Open-end mortgage

The correct answer is: Fixed payment mortgage

A conventional mortgage is primarily known as a fixed payment mortgage because it typically involves a loan with a consistent interest rate and fixed monthly payments over the life of the loan. This type of mortgage is not backed by a government entity and is usually used for purchasing a home, where the borrower commits to a specific repayment schedule. In a fixed payment mortgage, the portion that goes toward principal and interest stays the same throughout the duration of the loan, making it easier for borrowers to budget their monthly expenses. This stability contrasts with other loan types, such as adjustable-rate mortgages, where the payment can change over time based on fluctuating interest rates. Therefore, the terminology associated with a conventional mortgage highlights its predictable nature, which is crucial for financial planning and security for homeowners.