Interest charges on an amortized loan decrease over time. For an adjustable-rate mortgage, a fall in inflation by 3% would generally lead to decreased interest rates and, consequently, lower monthly payments for the homeowner.
The interest charges on an amortized loan decrease over the life of the loan. Initially, payments are primarily towards interest; as the principal reduces, the amount of interest decreases while more of the payment goes towards the principal balance.
In the case of an unexpected 3% fall in inflation, a homeowner with an adjustable-rate mortgage (ARM) is likely to see a decrease in their interest rates. Because ARMs are tied to market rates, which typically fall when inflation decreases, the homeowner could benefit from lower monthly payments. However, this depends upon the index and margins of their specific ARM and when their rate adjusts.