Explain why adjustable rate mortgages (ARMs) are considered to be a more suitable alternative for mortgage lending than PLAMs?
Adjustable rate mortgages :
Also referred to as variable rate or floating rate mortgages, an adjustable rate mortgage can be understood as a mortgage under which the interest rate to be paid keep changing as per the market condition prevailing at the time. Generally, the reset period, usually months or years, for interest rate is fixed at the initiation. The changes in interest rate is generally tied up to some proclaimed index or other benchmark as such.
Price level adjusted mortgage :
As the name suggests, price level adjusted mortgage or generally referred to as PLAM, relates to a certain type of mortgage under which the lending entity do not change the interest rate structure but resets the principal amount of the borrower as per the prevailing inflation rate in market. Such kinds of mortgages are not very common nowadays.
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