Final answer:
To determine the better years for borrowers or lenders using a hypothetical table of mortgage interest rates and inflation, one must compare the interest rates to inflation rates. Borrowers benefit when inflation is higher than interest rates, reducing the real cost of borrowing, while lenders benefit when interest rates are higher than inflation. For those with adjustable-rate mortgages, a drop in inflation could lead to lower payments.
Step-by-step explanation:
When analyzing mortgage options, one must consider interest rates and inflation rates. For borrowers, the ideal period to take a loan is when interest rates are low compared to inflation rates, effectively reducing the real cost of borrowing. In contrast, the ideal period for lenders is when interest rates are high compared to inflation rates, maximizing the real return on the money lent. Considering a hypothetical Table 19.11 that provides mortgage interest rates and inflation rates for various years, to determine better years for borrowing or lending, one would assess if inflation was higher than interest rates for the given years.
For example, if the interest rate in a given year was 5% and inflation was 3%, lenders would benefit because the real interest rate they're earning is positive. Conversely, if inflation rose to 6% while interest rates remained at 5%, borrowers would benefit, as the real cost of their loan would be negative. In the case of sudden inflation drops and adjustable-rate mortgages (ARMs), if inflation falls unexpectedly by 3%, the market interest rate would possibly decrease, which could lead to lower monthly payments for the homeowner with an ARM.