Final answer:
A Fixed-Rate Mortgage offers unchanged monthly payments throughout the life of the loan. An Adjustable-Rate Mortgage's payments can vary as the interest rate changes with market rates. If inflation falls by 3%, a homeowner with an ARM would likely experience lower monthly payments. Option 1
Step-by-step explanation:
The type of mortgage loan that features a monthly payment that does not change throughout the life of the loan is the Fixed-Rate Mortgage. This kind of mortgage maintains the same interest rate and monthly payments over the entire repayment term, providing stability and predictability to the borrower.
On the other hand, the Adjustable-Rate Mortgage (ARM) changes with market interest rates over the life of the mortgage. Consequently, if inflation falls unexpectedly by 3%, a homeowner with an Adjustable-Rate Mortgage would likely see a decrease in their mortgage interest rate, resulting in lower monthly payments.
This is because ARMs often have built-in inflation adjustments to match the interest rate to the inflation rate, reducing the risk for the lender and sometimes providing a lower initial interest rate to the borrower compared to fixed-rate loans.
However, the risk for the borrower with an ARM is that if inflation rises, so too will their interest rates, increasing their monthly payments. Option 1