A variable-rate mortgage:
A)eliminates the risk of expected inflation.
B)increases the efficiency of the economy.
C)is offered at an interest rate that increases with inflation.
D)is a fixed interest rate on a particular loan, but that fixed rate varies depending on the duration of the loan.
E)shifts the risk of unexpected inflation from the borrower to the lender.

Question

Quizplus · Accepted Answer

A variable-rate mortgage is offered at an interest rate that increases with inflation. This means that as inflation increases, so does the interest rate on the mortgage. This can be beneficial for lenders as they are able to shift some of the risk of unexpected inflation onto the borrower. However, it can also be risky for borrowers who may struggle to afford higher mortgage payments if inflation rises significantly.

A Variable-Rate Mortgage