Final answer:
The statement about a loan allowing a borrower to increase the principal up to a specified maximum without a new mortgage is true, describing a home equity line of credit or similar product, not to be confused with adjustable-rate mortgages which have variable interest rates.
Step-by-step explanation:
A loan that allows the borrower to increase the principal up to a specified maximum, without negotiating a new mortgage, is true and can typically be referred to as a home equity line of credit (HELOC) or a similar form of revolving credit. Unlike traditional loans, this type of loan provides flexibility for the borrower to borrow more funds up to a certain limit, as the need arises, without having to reapply for a new loan. It's especially useful for homeowners who want to manage their cash flow more effectively and have ongoing projects or expenses.
Adjustable-rate mortgages (ARMs) are different from these flexible credit lines; they involve interest rates that fluctuate with the inflation rate or other economic indicators. ARMs may offer lower initial interest rates than fixed-rate loans, potentially making it easier for some borrowers to qualify for larger loan amounts initially. However, the risk is that the interest rate and therefore the payments can increase over time, which is different from a loan with a revolving credit limit.
Understanding the terms of financial products like ARMs or lines of credit, in the context of market forces and regulations such as usury laws, is important for making informed borrowing decisions. These laws set an upper limit on interest rates, but they are typically set higher than market rates and therefore may not always have a practical effect.