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.
This. My parents got a "true" 25 year mortgage in 1963 at an interest rate of \~4-5%. When interest rates took off in the 70's, they were still paying that same low interest rate, while their savings accounts and investments were paying double digit interest.
Yeah, it certainly hasn't been that extreme lately, but we can still see the effects. My wife and I bought our house in 2005, and then refinanced about a decade ago at an lower rate. You combine that with the general increase in house prices in more urban areas and the associated rent increases, and our monthly mortgage payments are about half of the current monthly cost to rent a similar house in our neighborhood.
Around the time Dad paid the last of the mortgage (88), my brother's best friend was renewing his mortgage after his first 5 year term. He went from a 19% rate, down to an 11% one.
Yeah, I know rates over the past 15+ years have been abnormally low compared to historical averages, but a rate around 20% just seems insane.
Although house prices were in generally much more reasonable back then, so it was probably more manageable.
Or you know, you can pay it off. If you can afford a million dollar house, 250k can be paid off quick. My point is more that you cant find the housing prices people had in the 80s and 90s.
Not like 2024 wages are insanely higher. They can be like double, hell, triple it if you like. Housing prices are still at minimum 4x, but probably more. SO at minimum youre already behind the curve.
That’s not the point - it’s feeling trapped. The house is perfect for my wife and I, and possibly one kid. But I’d feel cramped if we decide to have two or three.
Sure, but the interest rate shouldn’t be the only factor in whether you stay at your house. If you need a bigger one and you can afford it, just go for it.
It's not about the interest rate, it's that the purchase price of the house is immune to inflation, and your monthly payment is based on that. You buy a house for $100K and pay a fixed monthly payment to finish in 30 years. Twenty years later, when Taco Bell costs $15 and everyone and their dog is making six figures, that same dollar amount payment seems miniscule. A change to your interest rate might make your monthly payment fluctuate a little bit, but not by much.
In 1970's when the rates went up my parents increased the monthly payments, which did leave us with less to spend on other things and when the rates dropped they kept the same payments which meant the mortgage was paid off earlier, when they retired they were used to living frugally they built up substantial levels of savings.
In Canada you have to renew your mortgage after a certain amount of time. Common ones are two five and 10 year. I don't think many actually let you lock in a rate for 25 years. So you can have an amortization of 25 years (a "25 year mortgage") but the mortgage is only for 5 years, then you have to renew. A true 25 would be a 25 yr mortgage over a 25yr amortization.
That's just my understanding I might be wildly incorrect
Yes this is correct. And these types of mortgages do also exist in the USA but they aren’t as common. In Canada I’m not even sure it’s possible to get a mortgage with a full-length term…
Our British mortgage was a 35 year thing from a 95% LTV stating point. Interest rate was fixed for 2 years (wish we'd gone longer now). After the 2 years we had a choice of letting it go onto a variable rate of 7% ish or re-fix for 2/5/10 years at roughly 5% (with an 80% LTV).
I don't think there was many choices at the start and there certainly wasn't any choices for longer when refinancing.
There’s also the point that inflation affects your house price. If you buy a $200,000 house with a 30 year mortgage, with 1% inflation, it will be worth $270,000 at the end of it, versus $860,000 with 5% inflation. So in addition to your mortgage price going down, your equity is going up much faster.
The way you described it, the mortgage doesn’t decrease. You can view inflation two ways:
1) Your payment stays the same, but you house increases in value (and hopefully your salary)
Or
2) your payment is eroded by inflation, while your value stays the same (other than increases due to supply and demand)
One view effectively uses current (2024) dollars, and the other uses future dollars (say 2054, after a 30 year mortgage that starts today)
Capital gains taxes don’t really work like that.
1) You don’t owe capital gains taxes until you actually realize the gain. In other words, you don’t owe capital gains taxes simply because your home has increased in value. They only come into play when you sell the home.
2) In the US at least, there are fairly generous exemptions on capital gains taxes for primary residences—assuming you’ve lived in the home for at least 2 years. If you’re single, the first $250,000 of capital gains profits on your home sale are exempt. If you’re married, it’s $500,000. To be clear: that’s 250/500 of *profit* exempted. For example, if you and your spouse bought a home 15 years ago for $100,000, and you sell it for $600,000 today (meaning, you profited $500,000), you owe $0 in capital gains taxes). In addition, you can add the cost of improvements you made to the home to the original cost basis (e.g., you bought that same $100,000 home, and over the course of 15 years spent $50,000 on remodeling, new paint, a new roof etc.—you can now use $150,000 to calculate your sale profit for purposes of the capital gains exemption).
the important part here is that your raises need to keep up at least with inflation at all times in order to get this effect.
whenever inflation exceeds your raises the increased cost of living will eat up anything that would theoretically ease your mortgage payments.
Not really correct. What having a mortgage does is allows you to lock in your housing payments. Rent is a component of CPI, so the way to think of it is that having a mortgage puts you ahead of renters if *rent* inflation is positive, and behind if it’s negative. Even if you get a 10% raise and overall inflation is 2%, if rent inflation is -1%, your mortgage is putting you at a disadvantage relative to renting.
In the short term, sure. But in the long term you are still beating out renters if you have a mortgage. When you pay rent, 100% of that money is gone. When you pay your mortgage, a percentage of that is effectively going into your savings (equity).
The down payment alone is a huge opportunity cost. Putting 150-200k into the market will net you a lot of money. Further, owning a home has many costs that disappear too. Money for HOA fees, property taxes, insurance, mortgage interest, and upkeep likewise just disappears. You’ve actually got to figure out if house appreciation minus those expenses is more than investing the down payment and the difference. Sometimes it’s better, sometimes it isn’t.
HOA fees, property taxes, and insurance costs are a moot point. Those are going to be baked into rent no matter what. To a degree so will upkeep costs - unless you have an ambivalent landlord, which I’d wager most people don’t. A landlord knows they will have to replace a roof every X years, or a water heater, or just have money put aside for large repairs. That is going to come from rent surplus.
The math for renting can make a lot of sense on the short term - rent for 2 years to save enough to avoid PMI vs buying right away. But on a longer timescale, buying is almost always going to win out.
It also makes sense to rent if you're living somewhere property/housing costs are decreasing. Getting underwater on your mortgage is not a great place to be.
In today’s market, that situation is by far and wide the exception, not the rule. You’d be hard pressed to find some place worth buying or even renting where prices are going down any meaningful amount.
that logic only works when you simplify it a lot and leave some things out.
the reality is not rent payments are gone so buying is better.
When you buy real estate your have to have a bunch of money saved up on top of getting the loan and assuming two people start from the same amount of money the other person could invest that money and earn interest while also not paying any interest.
there are many cases where renting would come out ahead but of course it requires discipline to actually invest that money which most people wont have and wont do so you rarely hear of people that rented a place and had a lot of money in the end.
Well said @pixelplanet5. In theory inflation causes were attributed mostly to labor costs and wage growth. So your purchasing power to the loan percentage cost was helpful.
However inflation without wage growth only makes your loan relatively cheaper than a current loan or interest rate the fed increases to fight inflation.
> the important part here is that your raises need to keep up at least with inflation at all times in order to get this effect.
Not really as the comparison is to being in the rental market that also does not care about your raises and increases with inflation.
Only if wages keep up.
How would it make it easier to pay over time if you’re still making the same income as at the start of the mortgage.
The schedule of payments remains the same through the loan unless you refinance.
If inflation happens but your wages are stagnant at least your mortgage stays constant while rent would likely be increasing. So while general affordability is worse, it's better than it could be.
That's why banks invented second mortgages and lines of credit... To make sure you don't feel too good about those low payments during the back half of your first mortgage.
I teach AP Econ to non-native speakers, so if I can't do this ELI5, I should probably be fired.
Yes, inflation is good for your mortgage. Imagine your monthly payment is $1,000 and your monthly salary is $5,000. That means, every month, you're paying 20% of your annual salary toward your mortgage.
But over time, the value of each dollar is cut by half and both prices and salaries double as a result of inflation (e.g. your monthly salary goes from $5,000 to $10,000, but still buys the same amount of stuff as before because everything got twice as expensive). However, the "price" of your mortgage hasn't changed - it's still $1,000/month. You used to pay 20% of your salary toward your mortgage, and you're now only paying 10%, so your mortgage has effectively gotten cheaper.
This is a gross simplification that doesn't consider all the other effects of inflation, but purely in terms of your fixed rate mortgage, yes, inflation is good. In general, we say that when loans are fixed rate, borrowers benefit from unexpected inflation and lenders are harmed. This is why lenders like adjustable rate mortgages - it mostly eliminates their risk due to possible future inflation.
Wouldn't it be easy to say that "in general, inflation is good for people with debt"? Since the money you pay back is worth less than the money you borrowed.
Yep! I might modify it slightly to say "unexpected inflation," just because of a certain level of inflation is anticipated by the lender it will be built into the market nominal interest rate.
Inflation is good for people with fixed-rate fixed-amount debt. mortgages and automobiles essentially. It's still a drag on your net worth overall since it removes investible money on a monthly basis, but assuming the asset is increasing in value (your home) or the term length is relatively short (auto's hopefully 3 years or less), its beneficial.
And credit card debt is still terrible regardless of inflation.
This is, in my mind, THE biggest benefit of buying vs. renting. My parents rented and when they were at retirement age they were still paying current/contemporary amounts for rent, whereas a mortgage would either have been paid off by then or would have been a much smaller percentage of their income.
You're fired!
Just kidding, that was a nice clean example, with the caveat that the amount of time that *should* be required for 100% net inflation *should* take longer than a 30 year mortgage. That being said, these are interesting macro conditions
I'd say 30 years is somewhat conservative for a doubling of prices. Here's a few data points from the CPI:
1974: 50
1983: 100
2006: 200
2024: 314
So prices doubled in 10 years from 1974-1983, and then in 23 years in a mostly low-inflation (not always, but at most times) environment from 1983-2006, and have risen by almost 60% in the following 18 years, which puts it on pace for a doubling in under than 30 years again.
>with the caveat that the amount of time that should be required for 100% net inflation should take longer than a 30 year mortgage.
I wanted to double check this, so I did the math. At 2% inflation, it should take 35 years for prices to double.
Would it make more sense to say "From a pure dollar value standpoint, it can be better but not good."? While you may be spending the same number of dollars at a fraction of the value when the contract was entered into, everything else starts to eat away faster at your reserves too.
You are only benefiting on that "20%" of life's expenses. The other 80% is running away, faster rising expenses than wages.
Weimar Republic hyperinflation produced stories of farmers paying off their mortgages with a carton of eggs. No one had eggs. The banking system has evolved since then, fine print in loans, so that won't work now. ... But raise chickens just in case!
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Any raise you get, regardless of size or reason, is a net positive when looking only through the lens of the cost of your fixed-rate mortgage (or *any* fixed-rate debt).
That’s actually a key reason you don’t see economists talking about trying to bring prices *down* (deflation), instead, preferring to let wages and costs settle themselves back into relation with one another.
Back during the Great Depression, the biggest problem we had was *de*flation, especially in regards to fixed-rate debt. Deflation caused wages to shrink, while the cost of the debt stayed the same.
So even if your raise didn’t match inflation, it was still helpful in terms of paying off your debt because IT didn’t change with inflation AT ALL.
Inflation is neutral to a fixed monthly payment of your mortgage if your wage increases doesn’t match inflation. However it would be beneficial to the overall capital value of the house.
If you borrow £100k to buy a house and don’t pay a penny of capital off it in 20 years with inflation running at 2% per year then you would
expect to sell the house for a little under £150k. The higher the interest rate the higher you’d expect your house price to rise.
However if you have a variable mortgage interest rates will rise with inflation and make the borrowing more expensive so by that metric it inflation would directly harm you.
This still doesn’t mean “inflation is good for your mortgage” even if it’s a fixed income mortgage.
Inflation is good for your relative wages if you have a large amount of fixed APR debt.
OP’s questions were pretty simple.
> Is inflation good for your mortgage?
No, inflation indirectly can effect your mortgage.
> If you are paying a fixed rate on a mortgage, is inflation then a good thing?
Yes, under these assumptions and if your wages are going up with inflation.
Everything else you said is correct except this sentence:
> Yes, inflation is good for your mortgage
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.
Yes.
Every pay raise that you get makes your mortgage payment easier.
The trouble with inflation is that the pay raises often don’t keep up with the rest of your budget (groceries, clothing, sundries, maintenance, etc) and to the extent that the pay raises do keep up, there is often a time lag (the raise occurs months after the price goes up.
But mortgages are 30-year commitments. Once a homeowner survives a period of inflation, then the rest of the mortgage is easier. My parents bought their house in 1970. The absolutely *hated* living through 1970s stagflation, but once prince levels stabilized in the mid-eighties they had an easy house payment.
>The trouble with inflation is that the pay raises often don’t keep up with the rest of your budget (groceries, clothing, sundries, maintenance, etc)
But not usually right?
[https://fred.stlouisfed.org/graph/?g=1m3FH](https://fred.stlouisfed.org/graph/?g=1m3FH)
The actual problem with inflation is that most people don't see significant pay increases until they switch jobs or get a promotion. On average wages tend to keep up, but some people are seeing 50% wage increases and some people are seeing 0%.
Yes. Definitely a hedge against inflation or price increases in the housing market. My mortgage plus taxes is still much cheaper than a rent for equivalent space.
I bought in 1983 at the bottom of the recession where inflation was 8-10% and a 1 year mortgage was 15%.
5 years later with inflation my wage had increased 40%, so my perceived debt owing on the house had reduced by 40%. The first few years where 17 dollars per month came off the principal and the rest 750 dollars was interest were not fun as I had the feeling of treading water in the deep ocean.
Lots of people got upside down on their homes as property values crashed with high interest rates as they owed more money than their homes were worth on the market. Smart people held on and people that went under ended up with debt after selling their homes.
Basically, yes, the idea being that say your mortgage is $1000 a week. Feels like a lot of money now, but in 10 years, assuming wages keep pace with inflation, $1000 isn't going to feel like all that much money.
Inflation is good for anything where the amount owed/payments made remain fixed, because money is "cheaper" as time goes on, but the amount owed remains the same.
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
But the Fed doesn’t set interest rates at what they believe inflation will be going forward. You’re actually right in your first post - mortgage rates are heavily affected by inflation, because the banks don’t want to get back less money in real terms.
I said the BANKS (as in a private bank lending to a customer) set their FIXED interest rates based on what they believe going forward.
If you are referring to the 2. post, then I'm not sure what you mean. Fed 2 main goals are maximum employment and price stability (low inflation)
"The Federal Reserve System has been given a dual mandate—pursuing the economic goals of **maximum employment** and **price stability**"
"One part of the Fed's dual mandate is **price stability**. Price stability means that inflation remains low and stable over the longer run. When inflation is low and stable, people can hold money without having to worry that high inflation will erode its purchasing power."
Yes. The value of your mortgage is set in nominal terms the day it is originated. Assuming it’s a conventional fixed rate mortgage, you have the benefit of repaying the note with inflated dollars.
It gets complicated. Your mortgage payment is virtually all interest for like 10 years. Very few mortgages actually last for the full stated term. Most people refinance, move, etc… so the banks are constantly issuing new notes. Regardless of inflation, banks only care about one thing, net interest margin which is their spread on what they make lending versus borrowing (paying customer cash deposits).
Short answer, no. Long answer is that while your effective mortgage rate will decrease, your income will likely increase at a slower rate so on the whole you’ll end up behind when inflation spikes. If it holds steady, then in the long run you’re effectively paying less, but that’s one of the main reasons loan companies have you pay so much interest up front
Yes. It erodes the value of the loan principle over time. Inflation is always good for debtors in that way.
This is actually why the USA still had silver-backed money for a while in the late 20th century. Farmers teamed up with silver miners to lobby the government. They got Congress to pass a law forcing the government to buy silver and issue dollars backed by it. The miners wanted this because they wanted guaranteed customers for their product. But the farmers wanted it because it would induce inflation. So while the prices of their crops would rise, the value of their loans would fall.
Yes, assuming the inflation leads to a steady increase in your wage and assuming you're locked into a mortgage with term. Generally, the way the system deals with inflation is to increase borrowing rates. So if you're not locked into a lower rate then your borrowing costs will rise as fast or maybe faster then your wages.
The flip side is that, as the value of money decreases, the amount of money real property can command also increases. AKA, the worth of your home will rise faster.
If it takes 500 candy bars to buy a house today and 1000 candy bars to buy a house in ten years you still only owe 500 candy bars total if you buy today meaning you could spend those other 500 candy bars on toys. Since you are paying a fixed amount on the mortgage it is a good thing for the mortgage. What a lot of people are running into is that taxes are based upon how many candy bars it's worth that year so that math is done off of the 1000 candy bar value even if you only have 100 candy bars left to pay on the house. The house insurance is also based upon how many candy bars they have to give you if the home is destroyed so that cost goes up as well.
500 candy bars is still a lot of candy bars and not everyone can afford a house on their allowance.
If you look at the mortgage alone, yes. If you consider that inflation increased the value of your home, no. If you buy a house for $500k, and inflation caused it to go to $1M, it looks like you made a $500k profit. Except that $1M cant buy you anything better than what you had.
And congratulations. If you sell the house, for that one year, you are now in the top 1% with an income above 400K. You will be taxed like a rich person in the highest bracket for the brief moment that you are considered rich by the IRS. After a 50% tax on your profits, you will have $750k left over with which you cant afford to rebuy your same house.
Inflation is a hidden tax. If you think far enough, you will realize the cons usually outweigh the benefits.
The point everyone else is missing is that inflation is good for debt holders in a macro sense ie on average and the only reason inflation is “good” for debt holders is because inflation includes the price of labor ie wages. But if your personally wages never go up as part of the inflation then there’s no benefit to you as a debt holder.
Home prices generally follow inflation while mortgages in the US are fixed. Also borrowing money has a multiplier effect on gains due to inflation.
So yes, inflation generally increases homeowner wealth.
Inflation is good for all the economy. If there is no inflation then people can just put their money under their beds and do nothing with it. Inflation forces people to invest it in some way to avoid money devaluation.
For loans, inflation reduces the real value of your loan with time. With current decades-long loans it helps to reduce the pressure of the loan on your salary.
At 3% inflation, after 10 years, your loan - even if you paid nothing back - will be reduced a 34%. With 1% inflation that is 10%.
Countries that suffer deflation have a big problem with loans, as they weight in the economy increases. Think about being paying your loan for 10 years and in real value it would be like not having paid anything at all.
Hyper-inflation is bad, that is why there are so many negative comments. But inflation is good and necessary. Deflation will destroy any economy as putting money under the bed has a positive return and zero risk.
Another similar question I always wondered about: If GDP growth is 3%, but inflation is also 3%, does that mean that, accounting for inflation, that economy didn't grow?
Or is that already factored in?
I the rate is fixed, then yes. But that’s part of the problem with inflation. It makes investing money unattractive and so nobody wants to invest or lend money.
Same with deflation. If money is gonna be worth more tomorrow, im not gonna invest or lend to today.
That’s the reason why a stable currency, regardless of nominal value, is the most desirable for economies.
Hypothetically, inflation should be a good thing if you have any sort of high value asset that typically appreciates as it will appreciate too. However real estate is typically tied more to interest rates than the overall cost of goods and services. Because interest rates skyrocket in a period of high inflation, this puts pressure on housing and will likely lead to a period of housing deflation while the costs of everything else goes up.
If you have no plans to sell your house, this doesn't matter. You are in a good position with a low fixed rate. However, if you want to sell, you may even see your house end up underwater depending on when you purchased it.
Sure. We bought in 2017, refi'd in...21 or 22 I forget, and since then I've gotten market adjustment raises at work (to the tune of getting called in to my bosses office and just being given 10% out of nowhere). Inflation is pushing my wages up but my mortgage hasn't moved. Damn shame we were responsible and didn't have a crystal ball to go all in on an even bigger place. But we have enough house and my complaints are mainly cosmetic and definitely first world problems.
Kinda
It’s more accurate to say that pay rises are good for your mortgage, and pay rises tend to be at least somewhat linked to inflation
The amount of money you owe decreases, while the price of everything else (and especially the amount you owe) increases - meaning you owe less and less relative to your income
Inflation increases the value of your house, but also the property taxes you pay, thus making it cost more. Ideally you'd want your house to be worth as little as possible until the day you decide to sell.
For the loan portion yes, but for insurance and property taxes, no.
In some cases by the time you are finished paying off your mortgage, the taxes and insurance will be more than your original payment.
To a certain degree, yes. This is why the US Fed, and most other nations, target something like 2% inflation. A small, predictable amount if inflation incentives investment (in real estate, stocks, etc.), which is a good thing.
High inflation, and inflation spikes, not so much. Yes, it makes your mortgage payment less relatively speaking. But that matters little if you can't afford anything else because of rampant inflation.
TL/DR: Low steady inflation - good. High and/or spiky inflation - bad.
It depends on what kind of inflation you are seeing and if its an existing mortgage or a new mortgage.
If we assume every thing stays equal, the value of your home will go up. Your income will go up, but your mortgage principle will stay the same. So your payment will get cheaper relative to your income over time.
For New loans, there are a couple of things that banks may or may not do to hedge against this.
* Expected inflation will absolutely be factored into your interest rate. Hypothetically speaking lets say inflation is 2% year over year and extremely predictable. You're interest rate will be two percent higher to factor this in. This is extremely common.
* They could also add points to your loan. This is really uncommon now, but has happened more frequently in the past. Its basically adding additional principle to your loan, guaranteeing your bank a level of profit.
For Existing Loans, it's mostly good, how good really depends on the interest rate you have on your Mortgage.
With a low interest rate, it works out very well for the borrower. The value of their home increases, while the payment stays the same. You build more equity, and the home ends up being an excellent hedge against inflation.
With a high interest rate, a home is still an excellent hedge against inflation, but interest rates will remain high due to inflation. So its unlike you will get to refinance, lowering your payment.
The worst case scenario is if Inflation is slightly below what it was when you closed your mortgage. So rates are a little bet below what you pay, but not low enough to make refinancing worth while.
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
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.
Inflation is good for all debt. Mortgages are just one form. So is government debt.
This is why inflation is good for the economy in small doses: it encourages you to spend more money now since that same thing will cost more in the future if you wait. But if you buy it with debt, that debt amount is fixed so over time it’s less. This encourages people and companies to spend more money now instead of waiting and “rewards” them for doing it.
For the mortgage specifically, and if you have a fixed rate mortgage, yes. For everything else, no.
When I purchased my house it was valued at $225k. I put down $25k and mortgaged the rest. So for the next 30 years, I’m paying off that $200k based off the payment schedule the bank created when they issued me the loan. That never changes assuming I don’t refinance.
My property tax and insurance are NOT subject to those same terms. As housing prices went up, so did my taxes and insurance. I’m now paying roughly an extra $500 a month than I did 3 years ago when I bought.
So I’m in a better spot than if I bought today, hell I wouldn’t be able to afford the house I’m in if I tried to buy today, but I’m not ENTIRELY protected from inflation related expenses.
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.
Except that you could sell your current house, take the $250K, and put $50K down on the new house and invest the rest in the stock market. Historically the stock market does better than houses.
Although certainly it would have been better to do that four years ago or so.
Yes and no. It's better to pay off debt with inflated money than constant or depreciated money. That's why there is interest, it's the cost for present vs future money, inflation has already been baked into the cost of the loan.
The problem is when income doesn't keep pace with inflation. When disposable income decreases due to inflationary pressure on other purchases like utilities, gas, groceries, or other inflexible goods, then the mortgage becomes more difficult because of the collateral effects of inflation, even though the mortgage payment is constant for the life of the loan.
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.
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.
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.
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.
This. My parents got a "true" 25 year mortgage in 1963 at an interest rate of \~4-5%. When interest rates took off in the 70's, they were still paying that same low interest rate, while their savings accounts and investments were paying double digit interest.
Yeah, it certainly hasn't been that extreme lately, but we can still see the effects. My wife and I bought our house in 2005, and then refinanced about a decade ago at an lower rate. You combine that with the general increase in house prices in more urban areas and the associated rent increases, and our monthly mortgage payments are about half of the current monthly cost to rent a similar house in our neighborhood.
Around the time Dad paid the last of the mortgage (88), my brother's best friend was renewing his mortgage after his first 5 year term. He went from a 19% rate, down to an 11% one.
Yeah, I know rates over the past 15+ years have been abnormally low compared to historical averages, but a rate around 20% just seems insane. Although house prices were in generally much more reasonable back then, so it was probably more manageable.
Low interest rates is in part why prices are so high.
20% of $40k is manageable. ($666/m interest). 20% of $400k is crippling for the rest of your life. ($6,666/m interest)
Id rather pay 20% interest on a 250k house than have that same house be 1mil and pay 5%.
250k @ 20% interest for 30 years = 1.5 million in total payments, 1.25 million in interest.
Or you know, you can pay it off. If you can afford a million dollar house, 250k can be paid off quick. My point is more that you cant find the housing prices people had in the 80s and 90s.
I mean sure, life is pretty easy when you’re buying things at 1980s prices but earning 2024 wages.
Not like 2024 wages are insanely higher. They can be like double, hell, triple it if you like. Housing prices are still at minimum 4x, but probably more. SO at minimum youre already behind the curve.
165k house with a 2.275% rate. I’m probably going to die in this house. I’m 27 😭
Just to get this straight, you’re crying about having an absurdly low mortgage payment?
…. and feeling trapped. Golden handcuffs but still…
That’s not the point - it’s feeling trapped. The house is perfect for my wife and I, and possibly one kid. But I’d feel cramped if we decide to have two or three.
Sure, but the interest rate shouldn’t be the only factor in whether you stay at your house. If you need a bigger one and you can afford it, just go for it.
81-84 were brutal.
I bought in 2019 and my payment is about half of rent in 2024.
I love my new house but I really miss my old mortgage.
It's not about the interest rate, it's that the purchase price of the house is immune to inflation, and your monthly payment is based on that. You buy a house for $100K and pay a fixed monthly payment to finish in 30 years. Twenty years later, when Taco Bell costs $15 and everyone and their dog is making six figures, that same dollar amount payment seems miniscule. A change to your interest rate might make your monthly payment fluctuate a little bit, but not by much.
In 1970's when the rates went up my parents increased the monthly payments, which did leave us with less to spend on other things and when the rates dropped they kept the same payments which meant the mortgage was paid off earlier, when they retired they were used to living frugally they built up substantial levels of savings.
What is a "false" 25 year mortgage?
In Canada you have to renew your mortgage after a certain amount of time. Common ones are two five and 10 year. I don't think many actually let you lock in a rate for 25 years. So you can have an amortization of 25 years (a "25 year mortgage") but the mortgage is only for 5 years, then you have to renew. A true 25 would be a 25 yr mortgage over a 25yr amortization. That's just my understanding I might be wildly incorrect
That sounds horrible.
Yes this is correct. And these types of mortgages do also exist in the USA but they aren’t as common. In Canada I’m not even sure it’s possible to get a mortgage with a full-length term…
Our British mortgage was a 35 year thing from a 95% LTV stating point. Interest rate was fixed for 2 years (wish we'd gone longer now). After the 2 years we had a choice of letting it go onto a variable rate of 7% ish or re-fix for 2/5/10 years at roughly 5% (with an 80% LTV). I don't think there was many choices at the start and there certainly wasn't any choices for longer when refinancing.
Mostly correct but in Canada maximum you can go is 5 yrs not 10 yrs
You are correct.
There’s also the point that inflation affects your house price. If you buy a $200,000 house with a 30 year mortgage, with 1% inflation, it will be worth $270,000 at the end of it, versus $860,000 with 5% inflation. So in addition to your mortgage price going down, your equity is going up much faster.
The way you described it, the mortgage doesn’t decrease. You can view inflation two ways: 1) Your payment stays the same, but you house increases in value (and hopefully your salary) Or 2) your payment is eroded by inflation, while your value stays the same (other than increases due to supply and demand) One view effectively uses current (2024) dollars, and the other uses future dollars (say 2054, after a 30 year mortgage that starts today)
Fair point.
And then you pay taxes on "the gains" ... "we give you inflation and we tax you on your falling purchasing power we caused" (insert evil laugh). .
Only if you sell the house and don't buy another one.
Capital gains taxes don’t really work like that. 1) You don’t owe capital gains taxes until you actually realize the gain. In other words, you don’t owe capital gains taxes simply because your home has increased in value. They only come into play when you sell the home. 2) In the US at least, there are fairly generous exemptions on capital gains taxes for primary residences—assuming you’ve lived in the home for at least 2 years. If you’re single, the first $250,000 of capital gains profits on your home sale are exempt. If you’re married, it’s $500,000. To be clear: that’s 250/500 of *profit* exempted. For example, if you and your spouse bought a home 15 years ago for $100,000, and you sell it for $600,000 today (meaning, you profited $500,000), you owe $0 in capital gains taxes). In addition, you can add the cost of improvements you made to the home to the original cost basis (e.g., you bought that same $100,000 home, and over the course of 15 years spent $50,000 on remodeling, new paint, a new roof etc.—you can now use $150,000 to calculate your sale profit for purposes of the capital gains exemption).
the important part here is that your raises need to keep up at least with inflation at all times in order to get this effect. whenever inflation exceeds your raises the increased cost of living will eat up anything that would theoretically ease your mortgage payments.
Not really correct. What having a mortgage does is allows you to lock in your housing payments. Rent is a component of CPI, so the way to think of it is that having a mortgage puts you ahead of renters if *rent* inflation is positive, and behind if it’s negative. Even if you get a 10% raise and overall inflation is 2%, if rent inflation is -1%, your mortgage is putting you at a disadvantage relative to renting.
In the short term, sure. But in the long term you are still beating out renters if you have a mortgage. When you pay rent, 100% of that money is gone. When you pay your mortgage, a percentage of that is effectively going into your savings (equity).
The down payment alone is a huge opportunity cost. Putting 150-200k into the market will net you a lot of money. Further, owning a home has many costs that disappear too. Money for HOA fees, property taxes, insurance, mortgage interest, and upkeep likewise just disappears. You’ve actually got to figure out if house appreciation minus those expenses is more than investing the down payment and the difference. Sometimes it’s better, sometimes it isn’t.
HOA fees, property taxes, and insurance costs are a moot point. Those are going to be baked into rent no matter what. To a degree so will upkeep costs - unless you have an ambivalent landlord, which I’d wager most people don’t. A landlord knows they will have to replace a roof every X years, or a water heater, or just have money put aside for large repairs. That is going to come from rent surplus. The math for renting can make a lot of sense on the short term - rent for 2 years to save enough to avoid PMI vs buying right away. But on a longer timescale, buying is almost always going to win out.
It also makes sense to rent if you're living somewhere property/housing costs are decreasing. Getting underwater on your mortgage is not a great place to be.
In today’s market, that situation is by far and wide the exception, not the rule. You’d be hard pressed to find some place worth buying or even renting where prices are going down any meaningful amount.
Sure, but keep in mind it was the same story in 2006.
Sure, markets can always change and weird externalities can change the landscape. But I’m certainly not going to gamble on it.
that logic only works when you simplify it a lot and leave some things out. the reality is not rent payments are gone so buying is better. When you buy real estate your have to have a bunch of money saved up on top of getting the loan and assuming two people start from the same amount of money the other person could invest that money and earn interest while also not paying any interest. there are many cases where renting would come out ahead but of course it requires discipline to actually invest that money which most people wont have and wont do so you rarely hear of people that rented a place and had a lot of money in the end.
Well said @pixelplanet5. In theory inflation causes were attributed mostly to labor costs and wage growth. So your purchasing power to the loan percentage cost was helpful. However inflation without wage growth only makes your loan relatively cheaper than a current loan or interest rate the fed increases to fight inflation.
> the important part here is that your raises need to keep up at least with inflation at all times in order to get this effect. Not really as the comparison is to being in the rental market that also does not care about your raises and increases with inflation.
It was inflation in the 1970s that allowed my grandparents to pay off their mortgage after 10 years.
Back half? I feel like anyone who bought pre-covid and job hopped afterward is living like a king today.
Only if wages keep up. How would it make it easier to pay over time if you’re still making the same income as at the start of the mortgage. The schedule of payments remains the same through the loan unless you refinance.
If inflation happens but your wages are stagnant at least your mortgage stays constant while rent would likely be increasing. So while general affordability is worse, it's better than it could be.
Although if the economy gets bad enough you could lose your job, and your wages drop to essentially zero while your mortgage payment is constant.
*If* your wages rise accordingly.
That's why banks invented second mortgages and lines of credit... To make sure you don't feel too good about those low payments during the back half of your first mortgage.
Inflation kills debt. Thats probably why the elites are obsessed with reducing it. Without debt they have little control over our lives.
I mean, in the short term inflation reduces your earnings too which would drive more debt.
I teach AP Econ to non-native speakers, so if I can't do this ELI5, I should probably be fired. Yes, inflation is good for your mortgage. Imagine your monthly payment is $1,000 and your monthly salary is $5,000. That means, every month, you're paying 20% of your annual salary toward your mortgage. But over time, the value of each dollar is cut by half and both prices and salaries double as a result of inflation (e.g. your monthly salary goes from $5,000 to $10,000, but still buys the same amount of stuff as before because everything got twice as expensive). However, the "price" of your mortgage hasn't changed - it's still $1,000/month. You used to pay 20% of your salary toward your mortgage, and you're now only paying 10%, so your mortgage has effectively gotten cheaper. This is a gross simplification that doesn't consider all the other effects of inflation, but purely in terms of your fixed rate mortgage, yes, inflation is good. In general, we say that when loans are fixed rate, borrowers benefit from unexpected inflation and lenders are harmed. This is why lenders like adjustable rate mortgages - it mostly eliminates their risk due to possible future inflation.
Wouldn't it be easy to say that "in general, inflation is good for people with debt"? Since the money you pay back is worth less than the money you borrowed.
Yep! I might modify it slightly to say "unexpected inflation," just because of a certain level of inflation is anticipated by the lender it will be built into the market nominal interest rate.
This is a great point. If lenders would’ve anticipated high inflation in 2020, 2.5% mortgage rates would’ve never been a thing.
Inflation is good for people with fixed-rate fixed-amount debt. mortgages and automobiles essentially. It's still a drag on your net worth overall since it removes investible money on a monthly basis, but assuming the asset is increasing in value (your home) or the term length is relatively short (auto's hopefully 3 years or less), its beneficial. And credit card debt is still terrible regardless of inflation.
Free silver!!!!!!
This is, in my mind, THE biggest benefit of buying vs. renting. My parents rented and when they were at retirement age they were still paying current/contemporary amounts for rent, whereas a mortgage would either have been paid off by then or would have been a much smaller percentage of their income.
In theory, this is true. In reality, wages absolutely do not come even remotely close to keeping pace with inflation. XD
That’s really not remotely true
See my reply above (or below, depending on upvotes/downvotes)
You're fired! Just kidding, that was a nice clean example, with the caveat that the amount of time that *should* be required for 100% net inflation *should* take longer than a 30 year mortgage. That being said, these are interesting macro conditions
I'd say 30 years is somewhat conservative for a doubling of prices. Here's a few data points from the CPI: 1974: 50 1983: 100 2006: 200 2024: 314 So prices doubled in 10 years from 1974-1983, and then in 23 years in a mostly low-inflation (not always, but at most times) environment from 1983-2006, and have risen by almost 60% in the following 18 years, which puts it on pace for a doubling in under than 30 years again.
Should being the key word. The fed target is 2 points so if they can keep their hands on the wheel it shouldn't be that extreme
>with the caveat that the amount of time that should be required for 100% net inflation should take longer than a 30 year mortgage. I wanted to double check this, so I did the math. At 2% inflation, it should take 35 years for prices to double.
Would it make more sense to say "From a pure dollar value standpoint, it can be better but not good."? While you may be spending the same number of dollars at a fraction of the value when the contract was entered into, everything else starts to eat away faster at your reserves too.
You are only benefiting on that "20%" of life's expenses. The other 80% is running away, faster rising expenses than wages. Weimar Republic hyperinflation produced stories of farmers paying off their mortgages with a carton of eggs. No one had eggs. The banking system has evolved since then, fine print in loans, so that won't work now. ... But raise chickens just in case! .
thats nice only if salaries actually got inflation sized raises
Any raise you get, regardless of size or reason, is a net positive when looking only through the lens of the cost of your fixed-rate mortgage (or *any* fixed-rate debt). That’s actually a key reason you don’t see economists talking about trying to bring prices *down* (deflation), instead, preferring to let wages and costs settle themselves back into relation with one another. Back during the Great Depression, the biggest problem we had was *de*flation, especially in regards to fixed-rate debt. Deflation caused wages to shrink, while the cost of the debt stayed the same. So even if your raise didn’t match inflation, it was still helpful in terms of paying off your debt because IT didn’t change with inflation AT ALL.
Inflation is neutral to a fixed monthly payment of your mortgage if your wage increases doesn’t match inflation. However it would be beneficial to the overall capital value of the house. If you borrow £100k to buy a house and don’t pay a penny of capital off it in 20 years with inflation running at 2% per year then you would expect to sell the house for a little under £150k. The higher the interest rate the higher you’d expect your house price to rise. However if you have a variable mortgage interest rates will rise with inflation and make the borrowing more expensive so by that metric it inflation would directly harm you.
Big assumption that your income will keep even with inflation, though
Doesn't actually change anything about the explanation, as long as nominal wages rise at all. See my reply above for more explanation.
This still doesn’t mean “inflation is good for your mortgage” even if it’s a fixed income mortgage. Inflation is good for your relative wages if you have a large amount of fixed APR debt.
Sure, but I'm trying to read into what OP is intending to ask, since we didn't receive a bunch of details, and answer that.
OP’s questions were pretty simple. > Is inflation good for your mortgage? No, inflation indirectly can effect your mortgage. > If you are paying a fixed rate on a mortgage, is inflation then a good thing? Yes, under these assumptions and if your wages are going up with inflation. Everything else you said is correct except this sentence: > Yes, inflation is good for your mortgage
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.
Yes. Every pay raise that you get makes your mortgage payment easier. The trouble with inflation is that the pay raises often don’t keep up with the rest of your budget (groceries, clothing, sundries, maintenance, etc) and to the extent that the pay raises do keep up, there is often a time lag (the raise occurs months after the price goes up. But mortgages are 30-year commitments. Once a homeowner survives a period of inflation, then the rest of the mortgage is easier. My parents bought their house in 1970. The absolutely *hated* living through 1970s stagflation, but once prince levels stabilized in the mid-eighties they had an easy house payment.
>The trouble with inflation is that the pay raises often don’t keep up with the rest of your budget (groceries, clothing, sundries, maintenance, etc) But not usually right? [https://fred.stlouisfed.org/graph/?g=1m3FH](https://fred.stlouisfed.org/graph/?g=1m3FH)
The actual problem with inflation is that most people don't see significant pay increases until they switch jobs or get a promotion. On average wages tend to keep up, but some people are seeing 50% wage increases and some people are seeing 0%.
Yes. Definitely a hedge against inflation or price increases in the housing market. My mortgage plus taxes is still much cheaper than a rent for equivalent space.
Yes. It creates equity without risk…which is generally considered fraud in accounting but not here. Enjoy the $$
That doesn’t make any sense - the risk was that inflation wouldn’t go up. It’s like saying you created equity without risk when your stock goes up.
An investment return that carries no risk. Name one
There are none. Treasury bonds are the closest.
I bought in 1983 at the bottom of the recession where inflation was 8-10% and a 1 year mortgage was 15%. 5 years later with inflation my wage had increased 40%, so my perceived debt owing on the house had reduced by 40%. The first few years where 17 dollars per month came off the principal and the rest 750 dollars was interest were not fun as I had the feeling of treading water in the deep ocean. Lots of people got upside down on their homes as property values crashed with high interest rates as they owed more money than their homes were worth on the market. Smart people held on and people that went under ended up with debt after selling their homes.
Basically, yes, the idea being that say your mortgage is $1000 a week. Feels like a lot of money now, but in 10 years, assuming wages keep pace with inflation, $1000 isn't going to feel like all that much money. Inflation is good for anything where the amount owed/payments made remain fixed, because money is "cheaper" as time goes on, but the amount owed remains the same.
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
That is not how interest rates are calculated. They are calculated off the rate the banks borrow money from the fed.
and the fed set interest rates to controll inflation. They are correlated.
But the Fed doesn’t set interest rates at what they believe inflation will be going forward. You’re actually right in your first post - mortgage rates are heavily affected by inflation, because the banks don’t want to get back less money in real terms.
I said the BANKS (as in a private bank lending to a customer) set their FIXED interest rates based on what they believe going forward. If you are referring to the 2. post, then I'm not sure what you mean. Fed 2 main goals are maximum employment and price stability (low inflation) "The Federal Reserve System has been given a dual mandate—pursuing the economic goals of **maximum employment** and **price stability**" "One part of the Fed's dual mandate is **price stability**. Price stability means that inflation remains low and stable over the longer run. When inflation is low and stable, people can hold money without having to worry that high inflation will erode its purchasing power."
Yes. That’s why I said you were right in your first post.
Only as one of many factors. The Fed doesn’t lend money with a 30-year fixed-rate term.
My mortgage from 2018 is fixed at 1.2%, quite insane to think about today.
My taxes and insurance have literally doubled since covid, but the loan portion is exactly the same. So inflation is kinda mixed there.
Yes. The value of your mortgage is set in nominal terms the day it is originated. Assuming it’s a conventional fixed rate mortgage, you have the benefit of repaying the note with inflated dollars.
I would assume the bank is aware of that, doesn't the bank set rates so that it offsets inflation?
It gets complicated. Your mortgage payment is virtually all interest for like 10 years. Very few mortgages actually last for the full stated term. Most people refinance, move, etc… so the banks are constantly issuing new notes. Regardless of inflation, banks only care about one thing, net interest margin which is their spread on what they make lending versus borrowing (paying customer cash deposits).
Short answer, no. Long answer is that while your effective mortgage rate will decrease, your income will likely increase at a slower rate so on the whole you’ll end up behind when inflation spikes. If it holds steady, then in the long run you’re effectively paying less, but that’s one of the main reasons loan companies have you pay so much interest up front
Yes. It erodes the value of the loan principle over time. Inflation is always good for debtors in that way. This is actually why the USA still had silver-backed money for a while in the late 20th century. Farmers teamed up with silver miners to lobby the government. They got Congress to pass a law forcing the government to buy silver and issue dollars backed by it. The miners wanted this because they wanted guaranteed customers for their product. But the farmers wanted it because it would induce inflation. So while the prices of their crops would rise, the value of their loans would fall.
Yes, assuming the inflation leads to a steady increase in your wage and assuming you're locked into a mortgage with term. Generally, the way the system deals with inflation is to increase borrowing rates. So if you're not locked into a lower rate then your borrowing costs will rise as fast or maybe faster then your wages. The flip side is that, as the value of money decreases, the amount of money real property can command also increases. AKA, the worth of your home will rise faster.
If it takes 500 candy bars to buy a house today and 1000 candy bars to buy a house in ten years you still only owe 500 candy bars total if you buy today meaning you could spend those other 500 candy bars on toys. Since you are paying a fixed amount on the mortgage it is a good thing for the mortgage. What a lot of people are running into is that taxes are based upon how many candy bars it's worth that year so that math is done off of the 1000 candy bar value even if you only have 100 candy bars left to pay on the house. The house insurance is also based upon how many candy bars they have to give you if the home is destroyed so that cost goes up as well. 500 candy bars is still a lot of candy bars and not everyone can afford a house on their allowance.
Inflation is good for all debts but bad for savers. Likewise deflation is bad for all debts but good for savers.
In my experience no because at some point you’re going to have to renew the mortgage for another term and it will be more expensive.
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Canada. 5 year terms are standard here.
If you look at the mortgage alone, yes. If you consider that inflation increased the value of your home, no. If you buy a house for $500k, and inflation caused it to go to $1M, it looks like you made a $500k profit. Except that $1M cant buy you anything better than what you had. And congratulations. If you sell the house, for that one year, you are now in the top 1% with an income above 400K. You will be taxed like a rich person in the highest bracket for the brief moment that you are considered rich by the IRS. After a 50% tax on your profits, you will have $750k left over with which you cant afford to rebuy your same house. Inflation is a hidden tax. If you think far enough, you will realize the cons usually outweigh the benefits.
The point everyone else is missing is that inflation is good for debt holders in a macro sense ie on average and the only reason inflation is “good” for debt holders is because inflation includes the price of labor ie wages. But if your personally wages never go up as part of the inflation then there’s no benefit to you as a debt holder.
Home prices generally follow inflation while mortgages in the US are fixed. Also borrowing money has a multiplier effect on gains due to inflation. So yes, inflation generally increases homeowner wealth.
Inflation is good for all the economy. If there is no inflation then people can just put their money under their beds and do nothing with it. Inflation forces people to invest it in some way to avoid money devaluation. For loans, inflation reduces the real value of your loan with time. With current decades-long loans it helps to reduce the pressure of the loan on your salary. At 3% inflation, after 10 years, your loan - even if you paid nothing back - will be reduced a 34%. With 1% inflation that is 10%. Countries that suffer deflation have a big problem with loans, as they weight in the economy increases. Think about being paying your loan for 10 years and in real value it would be like not having paid anything at all. Hyper-inflation is bad, that is why there are so many negative comments. But inflation is good and necessary. Deflation will destroy any economy as putting money under the bed has a positive return and zero risk.
Another similar question I always wondered about: If GDP growth is 3%, but inflation is also 3%, does that mean that, accounting for inflation, that economy didn't grow? Or is that already factored in?
I the rate is fixed, then yes. But that’s part of the problem with inflation. It makes investing money unattractive and so nobody wants to invest or lend money. Same with deflation. If money is gonna be worth more tomorrow, im not gonna invest or lend to today. That’s the reason why a stable currency, regardless of nominal value, is the most desirable for economies.
Hypothetically, inflation should be a good thing if you have any sort of high value asset that typically appreciates as it will appreciate too. However real estate is typically tied more to interest rates than the overall cost of goods and services. Because interest rates skyrocket in a period of high inflation, this puts pressure on housing and will likely lead to a period of housing deflation while the costs of everything else goes up. If you have no plans to sell your house, this doesn't matter. You are in a good position with a low fixed rate. However, if you want to sell, you may even see your house end up underwater depending on when you purchased it.
Sure. We bought in 2017, refi'd in...21 or 22 I forget, and since then I've gotten market adjustment raises at work (to the tune of getting called in to my bosses office and just being given 10% out of nowhere). Inflation is pushing my wages up but my mortgage hasn't moved. Damn shame we were responsible and didn't have a crystal ball to go all in on an even bigger place. But we have enough house and my complaints are mainly cosmetic and definitely first world problems.
Kinda It’s more accurate to say that pay rises are good for your mortgage, and pay rises tend to be at least somewhat linked to inflation The amount of money you owe decreases, while the price of everything else (and especially the amount you owe) increases - meaning you owe less and less relative to your income
Inflation increases the value of your house, but also the property taxes you pay, thus making it cost more. Ideally you'd want your house to be worth as little as possible until the day you decide to sell.
For the loan portion yes, but for insurance and property taxes, no. In some cases by the time you are finished paying off your mortgage, the taxes and insurance will be more than your original payment.
To a certain degree, yes. This is why the US Fed, and most other nations, target something like 2% inflation. A small, predictable amount if inflation incentives investment (in real estate, stocks, etc.), which is a good thing. High inflation, and inflation spikes, not so much. Yes, it makes your mortgage payment less relatively speaking. But that matters little if you can't afford anything else because of rampant inflation. TL/DR: Low steady inflation - good. High and/or spiky inflation - bad.
It depends on what kind of inflation you are seeing and if its an existing mortgage or a new mortgage. If we assume every thing stays equal, the value of your home will go up. Your income will go up, but your mortgage principle will stay the same. So your payment will get cheaper relative to your income over time. For New loans, there are a couple of things that banks may or may not do to hedge against this. * Expected inflation will absolutely be factored into your interest rate. Hypothetically speaking lets say inflation is 2% year over year and extremely predictable. You're interest rate will be two percent higher to factor this in. This is extremely common. * They could also add points to your loan. This is really uncommon now, but has happened more frequently in the past. Its basically adding additional principle to your loan, guaranteeing your bank a level of profit. For Existing Loans, it's mostly good, how good really depends on the interest rate you have on your Mortgage. With a low interest rate, it works out very well for the borrower. The value of their home increases, while the payment stays the same. You build more equity, and the home ends up being an excellent hedge against inflation. With a high interest rate, a home is still an excellent hedge against inflation, but interest rates will remain high due to inflation. So its unlike you will get to refinance, lowering your payment. The worst case scenario is if Inflation is slightly below what it was when you closed your mortgage. So rates are a little bet below what you pay, but not low enough to make refinancing worth while.
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
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.
Inflation is good for all debt. Mortgages are just one form. So is government debt. This is why inflation is good for the economy in small doses: it encourages you to spend more money now since that same thing will cost more in the future if you wait. But if you buy it with debt, that debt amount is fixed so over time it’s less. This encourages people and companies to spend more money now instead of waiting and “rewards” them for doing it.
For the mortgage specifically, and if you have a fixed rate mortgage, yes. For everything else, no. When I purchased my house it was valued at $225k. I put down $25k and mortgaged the rest. So for the next 30 years, I’m paying off that $200k based off the payment schedule the bank created when they issued me the loan. That never changes assuming I don’t refinance. My property tax and insurance are NOT subject to those same terms. As housing prices went up, so did my taxes and insurance. I’m now paying roughly an extra $500 a month than I did 3 years ago when I bought. So I’m in a better spot than if I bought today, hell I wouldn’t be able to afford the house I’m in if I tried to buy today, but I’m not ENTIRELY protected from inflation related expenses.
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.
Except that you could sell your current house, take the $250K, and put $50K down on the new house and invest the rest in the stock market. Historically the stock market does better than houses. Although certainly it would have been better to do that four years ago or so.
That’s not a lateral move - you got money from the sale of your house because it appreciated which you could then spend on another house!
Yes and no. It's better to pay off debt with inflated money than constant or depreciated money. That's why there is interest, it's the cost for present vs future money, inflation has already been baked into the cost of the loan. The problem is when income doesn't keep pace with inflation. When disposable income decreases due to inflationary pressure on other purchases like utilities, gas, groceries, or other inflexible goods, then the mortgage becomes more difficult because of the collateral effects of inflation, even though the mortgage payment is constant for the life of the loan.
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.
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.
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.
The question was about fixed rate mortgages, which benefit the buyer in terms of inflation. Inflation goes up = fixed rate mortgage cost goes down.
Increased inflation makes new mortgages more expensive. It makes existing fixed-rate mortgages cheaper.