Final answer:
Borrowers receiving a high-cost home loan must be informed that for a variable-rate mortgage, the interest rate and payment amount may fluctuate. If inflation falls unexpectedly by 3%, the interest rate on an ARM is likely to decrease, thereby reducing the homeowner's payment amounts.
Step-by-step explanation:
Borrowers must receive an additional set of disclosures three days prior to closing on high-cost home loans. These disclosures include, for variable-rate transactions, a statement that the interest rate and payment amount may fluctuate. The correct answer is A) Fluctuate. This means that with a variable-rate mortgage, as market interest rates change, the interest rate on the mortgage can go up or down, and therefore, the periodic payment amounts can also increase or decrease over time.
For example, if inflation falls unexpectedly by 3%, it is likely that the interest rate on an adjustable-rate mortgage (ARM) would decrease to reflect the lower inflation rate, thus potentially lowering the payment amounts for the homeowner. When inflation decreases, interest rates typically decrease as well, since inflation and interest rates are often closely linked.