A Price Level Adjusted Mortgage (PLAM)

Question

Quizplus · Accepted Answer

A PLAM adjusts the mortgage payment and interest rate based on changes in the borrower's income level and the general price level. This helps to solve the problem of the tilt effect and interest rate risk, as the payments and interest rate can be adjusted to account for changes in inflation or the borrower's income. PLAMs do not necessarily solve the maturity mismatch problem of the lender, and while they may not involve negative amortization, they can still be complex and difficult for the average borrower to understand.