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inflation is good…sometimes
WSA adsense code -->I’ve always thought that the biggest benefit of having a mortgage rather than renting was likely to be in the slow eating away of the value of the mortgage payment by inflation.
Before I bought my new house, I was renting a smaller flat for �375 per month. I estimate that if I had stayed there and the rent had increased with the rate of inflation at an average 3% annually, over 30 years I would have paid around �217K in rent.
On the other hand, assuming that mortgage interest rates stay at arount 5.5% (yes, I know that’s a big assumption), if I pay off my mortgage over the next 30 years at a rate of about �500 a month, I will have paid �180K. That’s �37K less for living in a bigger place.
I know that some of the extra money can and will be eaten up in maintenance costs, and also that I could have invested the difference between the rent and mortgage to provide a better financial return. Still, the power of inflation is very beneficial when it acts on my mortgage debt.
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Discussion
5 comments for “inflation is good…sometimes”
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You are right. Inflation does help people with long-term mortgage; especially 30 and 40-year. I wrote about this in a post that will be published next Monday…looks like you beat me to it
This is a great example of being able to see both sides of an issue. Inflation is mostly viewed negatively, but you can spin it to benefit you.
The advantage is purely psychological. it wouldn’t add up if you actually calculated it.
Can you make this into an article… I would love to publish it on my website at http://getprequalified.com. We would backlink…
Let me know if you have any questions.