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LSDefine
Simple English definitions for legal terms
price-level-adjusted mortgage
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A quick definition of price-level-adjusted mortgage:
A mortgage is a loan that you take out to buy a property. You give the property as security for the loan, and the loan becomes void when you pay it back according to the agreed terms. There are different types of mortgages, such as adjustable-rate mortgages, where the interest rate can change, and fixed-rate mortgages, where the interest rate stays the same. A price-level-adjusted mortgage is a type of fixed-rate mortgage where the principal balance adjusts to reflect inflation. This means that the amount you owe can increase or decrease depending on the inflation rate.A more thorough explanation:
A price-level-adjusted mortgage is a type of mortgage where the interest rate is fixed, but the principal balance is adjusted to reflect inflation. This means that as the cost of living increases, so does the amount owed on the mortgage.
For example, if someone takes out a price-level-adjusted mortgage for $100,000 with an interest rate of 5%, and inflation is 2%, the principal balance would increase to $102,000 after one year. This ensures that the lender is protected against inflation and the borrower is not burdened with an unmanageable debt.
Price-level-adjusted mortgages are not very common, but they can be useful for borrowers who want to protect themselves against inflation and lenders who want to ensure that they are repaid in real dollars.