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What term is used to describe the length of time a borrower is committed to a lender, during which the mortgage has a specified interest rate, payment schedule, and associated privileges? Additionally, what typically happens when the term ends and there is still an outstanding amount owed to the lender?

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Final answer:

The term used to describe the commitment period of a mortgage is known as the 'mortgage term'. At the end of a mortgage term, a borrower can pay in full, renew, or refinance the loan. Borrowers benefit when mortgage interest rates are below inflation, while lenders benefit when rates exceed inflation.

Step-by-step explanation:

The term used to describe the length of time a borrower is committed to a lender, during which the mortgage has a specified interest rate, payment schedule, and associated privileges, is known as the mortgage term. When a mortgage term ends with an outstanding balance still owed to the lender, the borrower must either pay off the balance in full, renew the mortgage for a new term, or negotiate a mortgage refinancing arrangement based on the current market conditions and their financial status.

Concerning the interest rates and periods for borrowing or lending, it would be more beneficial for a borrower when mortgage interest rates are lower than the rate of inflation because it would mean that the real cost of the loan decreases over time. Conversely, it would be beneficial for the bank to lend when mortgage interest rates exceed the rate of inflation, as this implies that the value of the repayments received by the bank retains more purchasing power over time.

For the adjustable-rate mortgage, if inflation falls unexpectedly by 3%, the market interest rates would likely decrease too. This could potentially lower the monthly payments for a homeowner with an adjustable-rate mortgage (ARM), as the rate on an ARM is typically influenced by changes in the market rate.

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