By purchasing a fixed-rate 30-year mortgage, inflation risk is:
A) eradicated.
B) spread equally to the borrower and lender.
C) passed from the lender to the borrower.
D) passed from the borrower to the lender.
E) borne by the government.

Question

Quizplus · Accepted Answer

In a fixed-rate mortgage, the interest rate remains constant over the life of the loan. If inflation rises, the real value of the payments decreases over time, benefiting the borrower. Thus, the inflation risk is transferred from the borrower to the lender, as the lender receives payments that are worth less in real terms than anticipated.

By Purchasing a Fixed-Rate 30-Year Mortgage, Inflation Risk Is