Final answer:
A decrease in inflation by 3% would generally result in lower interest rates for a homeowner with an adjustable-rate mortgage (ARM), leading to reduced monthly payment obligations. Fixed-rate mortgage holders, however, would see no change in their payments.
Step-by-step explanation:
If inflation falls unexpectedly by 3%, a homeowner with an adjustable-rate mortgage (ARM) is likely to benefit from the decrease.
As ARMs are generally tied to inflation and market interest rates, the interest rate on the mortgage will likely decrease, resulting in lower monthly payments for the borrower.
This is because the interest rate for an ARM is designed to adjust in accordance with changes in inflation, thereby protecting lenders from the risk that inflation will reduce the real value of the payments they receive.
In contrast, a homeowner with a fixed-rate mortgage would not experience any change in their interest rate or monthly payments due to changes in inflation, as their interest rate remains constant over the life of the mortgage.
Thus, during periods of declining inflation, borrowers with ARMs may be at an advantage over those with fixed-rate mortgages.