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What happens over time to the real cost of purchasing a home if the mortgage payments are fixed in nominal terms and inflation is in existence?


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2006-08-30 22:38:51
2006-08-30 22:38:51

Essentially nothing happens to the "real cost" of purchasing a home with fixed monthly payments while inflation is going up. Over time the house value will go up in dollars but those dollars will be worth less , i.e. they will buy less in the market place. Say you purchase a 100 thousand dollar house today and pay off your mortgage. In ten years your house, due to inflation, is worth 300 thousand dollars but those 300 thousand dollars don't go any further in the market place than the 100 thousand dollars did ten years prior. Inflation is simply the cheapening of the dollar (due to a government's rampant printing of the dollar without its' value based on anything, such as gold when the dollar was based on the gold standard) until, as in Germany after World War II, people were burning the German bills to keep warm because they were essentially worthless. As you are paying off your mortgage, if your income keeps rising along with inflation (lucky you), then it will seem as though your fixed mortgage payment is getting to be a good deal because everything else will be going up in price, but again, once you own your home outright and look around you will see that what your house's worth is with respect to other houses and to the general cost of things is about the same (unless you live in a red hot real estate area of the country, in which case, upon sale of said house, you will receive even more fluffy inflationary money to put in the bank).

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