Price Level Adjusted Mortgage (PLAM)

Form of Graduated Payment Mortgage in which the rate of interest paid remains fixed, but the outstanding balance is adjusted for inflation according to an appropriate price index. Periodically, according to a time schedule approved by both borrower and lender, the outstanding balance owed is revised for appreciation in property values and monthly payments are revised accordingly. See also Alternative Mortgage Instrument.

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.