Final answer:
With equal pay and accrual rates, a loan will have a straight-line amortisation pattern. If inflation falls by 3%, a homeowner with an adjustable-rate mortgage may benefit from lower monthly payments as their interest rate adjusts to the market.
Step-by-step explanation:
When the pay rate and the accrual rate are equal, the loan will have a pattern of straight-line amortisation. This means that the loan payments consist of equal parts of interest and principal, resulting in a constant payment amount throughout the life of the loan. This type of amortisation ensures a steady reduction of principal with each payment.
In the context of a mortgage, when discussing a fixed-rate mortgage versus an adjustable-rate mortgage, an interesting scenario is what happens if inflation falls unexpectedly. If inflation decreases by 3%, a homeowner with an adjustable-rate mortgage might see their interest rate adjust downward, following the decline in market interest rates influenced by lower inflation. Consequently, this could result in lower monthly payments for the homeowner.