If you are paying a fixed rate on a mortgage, is inflation then a good thing?
In: Economics
Inflation does generally make your loans effectively ‘cheaper’ later in their term, and for something like a 30 year mortgage, even relatively low inflation over that long of a time span can make your monthly payment feel pretty darn low during the back half of it.
Inflation can affect other aspects of your life besides just your mortgage though, especially if it’s a higher inflation rate, so it might not be a good thing overall. But in terms of just your fixed rate insurance, inflation basically does makes it easier to pay off over time.
On a purely theoretical basis, yes.
The assumption is that your wages are increasing along with prices. That isn’t always the case though. If your wages are stagnant, you might find yourself struggling to afford the mortgage if everything else is getting more expensive
I bought my little 1950s rambler for $95K about 25 years ago. Today it is valued at more like $250K. If I were to sell it and buy me another one just like it, it would cost me aobut $250K. Lateral move.
With respect to your fixed-rate mortgage that already exists, inflation is a good thing for you. But “with respect to your mortgage”, “already exists” and “for you” are big qualifiers in that sentence.
When you take a loan you get money today, which you pay back at a later date. Inflation means that value of money is decreasing, so yes inflation is good. In other words inflation means you get more value out of money today than at whatever date you have to pay it back.
However a fixed rate mortgage is essentially a bet against the bank. They predict inflation and therefore interest rates going forward and charge you based on this. So inflation is not enough, you need more inflation than expected for it to be “good”. If you are really lucky you can end up with with a fixed mortgage with lower interest rates than a savings account. This have happened to many people that took a fixed interest loan around 2021
It’s not “good” for your mortgage; but it’s not hurtful to your mortgage the way it is hurtful to all your other bills. So in comparison, your mortgage seems good. And as mentioned in another answer, if your wages go up with inflation, then that’s a lot like your payment going down.
Most likely, yes. You are more likely to increase your income via raises, job hops, second jobs, but your debt is fixed rate, which means your disposable income goes up.
So maybe not good for your mortgage, but good for you.
No of course not. Inflation is what happen when a state print money. That is what make interest types go up. And that’s what make mortgages more expensive.
Theoretically yes, any long term debt can become “cheaper” over time with respect to inflation. But remember that your principal and interest is only one part of what goes into the cost of a house. You also have property taxes, homeowners insurance, utilities, and maintenance, all of which can be affected by inflation.
My taxes and insurance have literally doubled since covid, but the loan portion is exactly the same. So inflation is kinda mixed there.
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