Question

Under which financing technique would no payment be due until the property is sold, the borrowers move from the home for longer than 12 months, all borrowers have died, or the borrower defaults?

a) Reverse mortgage
b) Adjustable-rate mortgage
c) Interest-only mortgage
d) Balloon mortgage

Answer 1

a) Reverse mortgage

A reverse mortgage is the financing technique where no payment is due until the property is sold, the borrower defaults, or other qualifying events happen. Adjustable-rate mortgages may become cheaper if inflation falls. Evaluating historic mortgage interest rates and inflation can reveal who benefitted more at different times, borrowers or banks.

Step-by-step explanation:

The financing technique where no payment is due until the property is sold, the borrowers move from the home for longer than 12 months, all borrowers have died, or the borrower defaults is known as a reverse mortgage. This type of loan is typically aimed at older homeowners and allows them to access the equity in their home without monthly mortgage payments. The loan is repaid when the last surviving borrower dies, sells the home, or permanently moves out. In contrast, an adjustable-rate mortgage (ARM), interest-only mortgage, and balloon mortgage all require payments before these events occur.

Regarding adjustable-rate mortgages, if inflation falls unexpectedly by 3%, the market interest rates might decrease correspondingly. Consequently, a homeowner with an ARM could potentially benefit from a lower adjustable interest rate, which might result in lower monthly mortgage payments. This is one of the risks and opportunities associated with ARMs compared to fixed-rate mortgages, which maintain the same interest rate over the entire life of the loan regardless of changes in market rates.

When considering the relationship between mortgage interest rates and inflation, if an individual were to analyze historical data, they would need to evaluate the difference between the two rates to determine which party, either the borrower or the lending bank, would have had a financial advantage in any given year. A mortgage rate that is significantly higher than the inflation rate is generally better for the bank, while a mortgage rate close to or below inflation is advantageous for borrowers.

Answer 2

A reverse mortgage is the correct option under which no payment is due until the property conditions that include selling, moving, borrower's death, or default, are met. This type of mortgage is designed for homeowners aged 62 or older.

Step-by-step explanation:

The financing technique where no payment is due until the property is sold, the borrowers move away for longer than 12 months, all borrowers have died, or the borrower defaults is called a reverse mortgage. Unlike other mortgage options, a reverse mortgage allows homeowners aged 62 and above to convert part of their home equity into cash without having to sell their home or make regular loan payments. Payments from the mortgage company to the homeowner can be received monthly, as a lump sum, or drawn upon as needed.

In comparison, an adjustable-rate mortgage (ARM) has interest rates that can change over time based on market conditions, typically starting with a lower initial rate that can increase or decrease. An interest-only mortgage requires the borrower to pay back only the interest on the loan for a certain period. A balloon mortgage has low monthly payments for a set term, but requires a large payment of the remaining balance at the end of this term.