The Fed's low short-term interest rate policy of 2002 to 2004 made it highly attractive for buyers to purchase a house
A) with a large down payment and a 30-year, fixed rate mortgage.
B) with a large down payment and an adjustable rate mortgage.
C) with a small down payment and an adjustable rate mortgage.
D) quickly before housing prices began to decline in 2006.

Question

Quizplus · Accepted Answer

The low short-term interest rate policy made it more attractive for buyers to purchase a home with a small down payment and an adjustable rate mortgage because the initial interest rate on an ARM is typically lower than a fixed-rate mortgage. However, as interest rates increased, so did monthly mortgage payments, leading to many homeowners defaulting on their loans and contributing to the housing crisis of 2008.

The Fed's Low Short-Term Interest Rate Policy of 2002 to 2004