Question

How inflation expectations have changed the mortgages structure? Why? Explain how lenders have “technically” partially solved this problem?

Answer 1

Inflation expectations have changed the way lenders lend through mortgage loans, set interest rates. In case high inflationary expectations, the interest rates are usually lower and vice versa. The reason being in case of inflation, people in the economy are earning more, in turn are able to save more and the bank has surplus funds to lend. Bankers have partially solved this problem through offering a variable rate of interest mortgage where in the interest rate is adjusted according to the inflation over the tenure of the loan.