Final answer:
A mortgage requiring a large ending payment is a balloon mortgage. For adjustable-rate mortgages, if inflation falls by 3%, the homeowner may benefit from reduced interest rates and lower monthly payments, subject to any rate caps.
Step-by-step explanation:
A type of amortized mortgage that calls for a large payment at the end of the term is known as a balloon mortgage. This financing structure requires borrowers to pay regular monthly payments for a set period, followed by a large, lump-sum payment to pay off the remaining balance. In contrast, an adjustable-rate mortgage (ARM) has a fluctuating interest rate that changes with market conditions.
If inflation falls unexpectedly by 3%, a homeowner with an adjustable-rate mortgage may experience a decrease in their interest rate, assuming the lower inflation leads to a reduction in market interest rates. This can result in lower monthly payments for the homeowner. However, it's important to keep in mind that ARMs are subject to interest rate caps that may limit how much the interest rate can change over a certain period or over the life of the loan.