Final answer:
The mortgage type usually with the shortest term is a balloon payment mortgage. A homeowner with an adjustable-rate mortgage could benefit from a decrease in interest rates if inflation falls unexpectedly by 3%, leading to potentially lower monthly payments.
Step-by-step explanation:
The type of mortgage that is usually the shortest term and requires further action at the end of it is a balloon payment mortgage. The balloon payment mortgage has a term that typically lasts for a shorter period of time compared to other types, usually 5-7 years, after which the remaining balance must be paid off or refinanced.
It differs significantly from a graduated payment mortgage, which has increasing payments over time, an adjustable rate mortgage (ARM), which has interest rates that vary with the market, and a fixed rate mortgage, which maintains the same interest rate throughout the term of the loan.
If inflation falls unexpectedly by 3%, a homeowner with an adjustable-rate mortgage could likely see a decrease in their interest rates. Since ARMs are tied to market interest rates, which are influenced by inflation, lower inflation would typically lead to lower interest rates.
As a result, the homeowner's monthly payments could decrease, providing them with a financial advantage in terms of reduced payment amounts.