Final answer:
Under an FHA graduated payment mortgage, the 'monthly payments' fluctuate over the term of the loan. If inflation falls by 3%, a homeowner with an adjustable-rate mortgage may experience a decrease in their interest rate and subsequently lower monthly payments.
Step-by-step explanation:
Under an FHA graduated payment mortgage, the factor that fluctuates over the term of the loan is the monthly payments.
This type of mortgage is designed to have payments that start lower and increase over time, usually for a period before leveling off.
This can be ideal for borrowers who expect their incomes to rise in the future. The interest rate, finance charge, and annual rate do not fluctuate in the same way; these are typically determined and fixed at the outset of the mortgage.
Addressing the review question, if inflation falls unexpectedly by 3%, a homeowner with an adjustable-rate mortgage (ARM) may benefit as their interest rate is subject to market fluctuations.
With lower inflation, interest rates typically decrease, which means that the homeowner's interest rate may go down, resulting in lower monthly payments.
Under an FHA graduated payment mortgage, monthly payments fluctuate over the term of the loan. This type of mortgage starts with lower initial payments that gradually increase over time.
This allows borrowers to initially afford a higher loan amount and make smaller payments when they have less income, with the expectation that their income will increase in the future.