Question

Which of the following mortgages would you prefer to hold if you were a lender and you expected inflation of uncertain magnitude?
A. Conventional fixed-rate mortgages
B. Reverse annuity mortgages
C. Adjustable-rate mortgage loans
D. Balloon payment mortgages

Answer 1

Answer: Option C

                             

Explanation: An adjustable mortgage (ARM) is a borrowing form in which the rate of interest charged to the remaining balance varies all across the loan's lifetime. The new interest rate is set for an amount of time with an adjustable-rate mortgage, after which it resets regularly, often quarterly or even monthly.

The mortgage can be given at the normal variable rate/base rate of the lender. There may be a clear and statutorily defined relation to the applicable index, but if the creditor does not provide a specific link to the underlying market or index, the rate may be adjusted at the option of the lender.