Dictionary of Real Estate Terms: price-level-adjusted mortgage
price-level-adjusted mortgage
a loan whose payment is adjusted according to the rate of inflation. The payments are generally quite low, typically 3 to 5% annually of the debt. This type of mortgage is not commonly used in the U.S.
Example: A price-level-adjusted mortgage is made for $100,000. Monthly payments in the first year are $400. After the first year, the principal balance is reduced to $98,000. The inflation rate for the year was 10%. The principal balance is adjusted to $107,800 and the payments for the second year are increased to $440 per month.
