Legal Definitions - price-level-adjusted mortgage

A price-level-adjusted mortgage is a type of mortgage where the interest rate is fixed, but the principal balance is adjusted to reflect inflation. This means that as the cost of living increases, so does the amount owed on the mortgage.

For example, if someone takes out a price-level-adjusted mortgage for $100,000 with an interest rate of 5%, and inflation is 2%, the principal balance would increase to $102,000 after one year. This ensures that the lender is protected against inflation and the borrower is not burdened with an unmanageable debt.

Price-level-adjusted mortgages are not very common, but they can be useful for borrowers who want to protect themselves against inflation and lenders who want to ensure that they are repaid in real dollars.