Final answer:
The answer is 'd. "zero-down" mortgage' which allows purchasing a home with no down payment. Borrowers benefit when mortgage rates are low compared to inflation; lenders benefit when rates are high. An ARM homeowner could see reduced payments if inflation and market rates fall.
Step-by-step explanation:
The correct answer to the multiple-choice question is d. "zero-down" mortgage. This type of mortgage loan allows a borrower to purchase a home with no down payment, meaning they only pay for the paperwork costs of the loan at closing. Traditionally, lenders require a down payment, often suggested to be 20% of the home's purchase price, which helps to protect the lender and can eliminate the need for private mortgage insurance (PMI). However, there are options like zero-down or low-down-payment loans, which generally require borrowers to pay for mortgage insurance, eventually increasing the total cost of the mortgage over time.
When comparing the mortgage interest rate to the rate of inflation, it would be better for individuals to borrow money from a bank when the mortgage interest rates are low relative to inflation. This situation allows the real value of mortgage payments to decrease over time. Conversely, it would be more advantageous for banks to lend money when mortgage interest rates are high relative to inflation, as the real value of the payments they receive would be higher. Furthermore, in cases where inflation suddenly drops by 3%, a homeowner with an adjustable-rate mortgage (ARM) might benefit from a decrease in monthly payments if the market interest rates fall in response to the lower inflation rate.