Price Level Adjusted Mortgage - PLAM

DEFINITION of 'Price Level Adjusted Mortgage - PLAM'

A special type of graduated-payment mortgage that adjusts for inflation. The interest rate of a price level adjusted mortgage (PLAM) does not change, but the outstanding principal is changed periodically based on the inflation rate. These adjustments are made based on the movements of an appropriate price index, such as the Consumer Price Index (CPI).

BREAKING DOWN 'Price Level Adjusted Mortgage - PLAM'

The unpaid principal of a PLAM is adjusted periodically, based upon the rate of inflation or deflation. The payments are then revised based on the new outstanding principal. These adjustments are made at intervals agreed upon by the borrower and lender. This type of mortgage allows the lender to be paid back principal and interest plus an amount to cover inflation.