1) Which type of mortgage can potentially solve borrower’s default risk when home price drops significantly?...
1) Which type of mortgage can potentially solve borrower’s default risk when home price drops significantly?
SAM (shared appreciation mortgage)
PLAM (price level adjusted mortgage)
GPM (graduate payment mortgage)
(a) and (b)
2)Which type of mortgage can best mitigate “tilt effect” when inflation is high?
FRM (fixed-rate mortgage)
SAM (shared appreciation mortgage)
GPM (graduate payment mortgage)
(a) and (b)
Homework Answers
1)PRICE LEVEL ADJUSTED MORTGAGE
The loan balance is adjusted to reflect changes in inflation on an ex-post basis
2)GRADUATE PAYMENT MORTGAGE
GPM offset the tilt effect by lowering the payments on an FRM in the early periods and graduating them up over time.
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