Final answer:
In the context of a mortgage, the amount borrowed is called the principal. For borrowers and lenders, the better position depends on how the mortgage interest rate compares to the rate of inflation. The primary loan market is where loans are made to borrowers, and the secondary loan market is for buying and selling these loans.
Step-by-step explanation:
Typically, a mortgage loan monthly payment consists of PITI, where the 'P' stands for principal. The amount borrowed from the lender is called the principal. Therefore, the correct answer to the question is c) the principal. A mortgage is a loan provided by a bank or lender that enables an individual to purchase a home. While the homebuyer commits to paying back the loan in monthly installments over a set period of time, the principal refers to the original sum of money borrowed. Regarding the scenario of interest rates and inflation, the preferable position between borrower or lender changes based on economic conditions. If the mortgage interest rate is lower than the rate of inflation, borrowers benefit because the real interest rate they are paying could be negative, meaning they are paying back less in real terms than they borrowed. Conversely, if the mortgage interest rate is higher than the rate of inflation, lenders benefit because the real interest rate they are earning is positive, providing them with greater purchasing power than the money originally lent. The value of a mortgage from the bank's perspective lies in the legal obligation of the borrower to make payments over time. This loan is considered an asset for the bank. There are also markets involved here—the primary loan market, where financial institutions make loans to borrowers, and the secondary loan market, where they buy and sell these loans.