Final answer:
A fixed-interest rate loan is most suitable for Tristan as it provides uniformity in payments, facilitating budgeting on a limited budget. Borrowing is more advantageous when the mortgage rate is lower than inflation while lending benefits when the opposite is true. Homeowners with an adjustable-rate mortgage might experience lowered monthly payments if inflation drops. The correct option is d) Fixed interest rate loan
Step-by-step explanation:
Tristan, who is working with a limited budget and looking to purchase a house by taking out a loan with uniform monthly payments, would find a fixed-interest rate loan to be the most suitable option. This type of loan has a stable interest rate throughout the life of the loan, ensuring that his monthly payments remain consistent which can help with budgeting.
In comparison, variable interest rate loans fluctuate with market conditions, potentially resulting in increased payments that may not align with Tristan’s budget constraints.
As for other options, credit card loans typically have higher interest rates not suitable for long-term financing such as house purchasing, personal loans may not offer sufficient funding for a home, and auto loans are specific to vehicle financing and not applicable to buying a house.
When analyzing scenarios where it would be beneficial to borrow or lend money for house purchasing, one must consider the mortgage interest rates in comparison to the rate of inflation.
In years where the mortgage interest rate is lower than the rate of inflation, it would likely be more advantageous for a person to borrow money, as the real value of the money repaid is less than the value at the time of borrowing.
Conversely, if the mortgage interest rates are higher than the rate of inflation, banks benefit more as they receive money that is higher in real value compared to when it was lent.
The question concerning unexpected falls in inflation by 3% and its effect on homeowners with an adjustable-rate mortgage would lead to the likelihood of a decrease in interest rates, potentially lowering monthly payments for such homeowners. However, this could also vary depending on the specific terms of the mortgage agreement. The correct option is d) Fixed interest rate loan