Question
21. How do changes in interest rates affect mortgage borrowing costs? Lower interest rates increase borrowing costs Higher interest rates increase borrowing costs Interest rates have no impact on borrowing costs Higher interest rates decrease borrowing costs
Answer
4.3
(205 Votes)
Uwenna
Master · Tutor for 5 years
Answer
x
Explanation
The impact of interest rates on mortgage borrowing costs is analyzed from an economic point of view. In general, interest rates and borrowing costs share a direct relationship: when interest rates increase, borrowing costs also increase; conversely, when interest rates decrease, borrowing costs reciprocate that fall. Interest rates reflect the price which must be paid to borrow a sum of money. Economically speaking, a strategic individual usually borrows more when borrowing costs - or interest rates - are low, in order to attain a cheaper overall payment. On the other hand, when borrowing costs increase alongside rising interest rates, individuals tend to curtail their borrowing activities as the overall price for borrowing becomes substantially more expensive. Interest rates certainly have an impact on borrowing costs, countering the alternative view represented by one of the false option, "Interest rates have no impact on borrowing costs". Lastly, the option "Higher interest rates decrease borrowing costs" is incorrect due to the direct - not inverse - relationship shared between interest rates and borrowing costs. Hence, considering the provided options, "Higher interest rates increase borrowing costs" most accurately describes the primary influencing factors on borrowing costs, specifically surrounding changes in interest rates.