Final answer:
The best years to borrow money for a mortgage are when the mortgage interest rate is low relative to the rate of inflation, benefitting the borrower. Conversely, banks benefit more in years when the interest rate exceeds the inflation rate. For homeowners with an adjustable-rate mortgage, a fall in inflation would likely result in decreased monthly payments.
Step-by-step explanation:
Evaluating Mortgage Loan Decisions, When considering the best years to borrow money for a mortgage loan versus the best years for a bank to lend money, we need to look at the mortgage interest rates in comparison to the rate of inflation.
If the mortgage interest rate is high relative to inflation, this would generally be better for the bank as it means the real return on the loan is higher. Conversely, if the mortgage interest rate is low relative to or close to the rate of inflation, it would be more advantageous for the borrower since the real cost of borrowing is reduced.
In reviewing these factors, it would be better for a person to borrow money in years where inflation is equal to or higher than the interest rate because the cost of borrowing is effectively less. For a bank, lending money would be more favorable in the years where the interest rate exceeds the rate of inflation, which would ensure a higher real rate of return on the loan they provide.
For homeowners with an adjustable-rate mortgage (ARM), if inflation falls unexpectedly by 3%, the market interest rates are likely to decrease as well, since they usually correlate with inflation rates. This means the interest rate on the ARM could decrease, leading to lower monthly payments for the homeowner. Therefore, a fall in inflation can benefit those with ARMs as their borrowing costs decrease correspondingly.