International Baccalaureate (IB) Practice Exam

What is the most cost-effective option for purchasing a home?

1. 100% down payment or a 15-year fixed rate mortgage with at least 10% down

2. A 30-year mortgage with the lowest possible payments

3. A 30-year mortgage with a 20% down payment

4. A 15-year mortgage with a 5% down payment

The correct answer is: 100% down payment or a 15-year fixed rate mortgage with at least 10% down

The most cost-effective option for purchasing a home is the choice involving a 100% down payment or a 15-year fixed rate mortgage with at least a 10% down payment. This option is advantageous because paying 100% upfront means that no interest will accrue on a mortgage, which significantly reduces the overall cost of the home over time. If choosing the 15-year fixed mortgage with at least a 10% down payment, you can benefit from lower interest rates typically associated with shorter loan terms, as well as a reduced amount of interest paid in total compared to a longer-term mortgage. Additionally, making a larger down payment reduces the principal, leading to lower monthly payments and less interest accrued over the life of the loan. While other options involve lower down payments or longer mortgage terms, they often result in higher overall costs due to increased interest payments and longer repayment periods. A 30-year mortgage, for instance, may seem appealing due to lower monthly payments, but it usually ends up costing significantly more in interest over the duration of the loan compared to a 15-year option. The higher the down payment and the shorter the term, the less economic burden incurs through interest charges, making the first option the most cost-effective overall.