Final answer:
A graduated payment mortgage is most suitable for someone with an expected gradual income increase, as it offers lower initial payments that rise over time. For adjustable-rate mortgages, a fall in inflation by 3% would generally result in lowered interest rates and monthly payments. Option C
Step-by-step explanation:
If a student anticipates their income to rise slowly but steadily over the years, the most suitable option among those provided would likely be a graduated payment mortgage. This type of mortgage is designed to start with lower initial monthly payments that gradually increase over time, aligning with the borrower's expected income growth.
A 30-year fixed rate mortgage offers stability with the same interest rate and payment over the life of the loan, but does not specifically account for increasing income.
A 15-year ARM (adjustable-rate mortgage) could introduce uncertainty with fluctuating payments if market rates change, which might not be desirable. A balloon payment mortgage would require a large payment at the end of the loan term, which could be a financial strain despite income growth.
Concerning the volatility of inflation rates and their impact on mortgages, if inflation falls unexpectedly by 3%, homeowners with an adjustable-rate mortgage would likely see their interest rates - and thus their monthly payments - decrease.
This is because ARMs are often tied to an index that follows the general trend of interest rates, which tend to fall when inflation decreases. Loans often have built-in inflation adjustments, meaning that if the inflation rate drops, the interest rates charged on new ARMs would typically also decrease. It should be noted that the existing ARMs would only adjust during their respective adjustment periods as stipulated in the mortgage terms. Option C