Final answer:
It is false that CAM loan balances always exceed CPM loan balances before maturity under the same loan conditions. For adjustable-rate mortgages, a decrease in inflation generally results in decreased interest rates and thus potentially lower monthly payments, while fixed-rate mortgages remain unaffected by inflation changes.
Step-by-step explanation:
The assertion that a Constant Amortisation Mortgage (CAM) loan balance always exceeds a Constant Payment Mortgage (CPM) loan balance prior to maturity is false. In a CAM, the principal amount is paid in equal installments over the term of the loan, causing the loan balance to decrease more rapidly than a CPM, where the combination of principal and interest is constant, leading to a slower reduction in principal. As both types of mortgages progress, the CAM loan balance will typically become lower than the CPM loan balance before reaching maturity, under the same initial conditions.
If an unexpected 3% fall in inflation occurs, a homeowner with an adjustable-rate mortgage (ARM) would likely experience a decrease in their interest rates as ARMs are designed to adjust with market conditions, which typically follow inflation trends. A lower inflation rate often leads to lower interest rates, thereby potentially reducing the monthly mortgage payments for an ARM homeowner. Conversely, those with a fixed-rate mortgage would not be affected by this change in inflation as their interest rate remains the same over the life of the loan.