Mortgage Can Be Unexpected Buffer Against Inflation

In these days of low inflation, it is worth remembering that financial cycles can change dramatically over the course of a 30-year mortgage. And that loan, especially if it has a low fixed interest rate, can be a hidden hedge against inflation if consumer prices and interest rates start to climb.

San Diego home prices are likely to go up with the rising tide of inflation. And that’s when owners of San Diego homes and condominiums could find that they are doubly protected by their mortgage – especially if it has a fixed rate. Payments remain the same even as inflationary forces drive up home values and interest rates.

Holders of adjustable-rate mortgages won’t reap the same benefits because their interests rates would likely be adjusted upward. Still, with today’s sharper focus on consumer protection, there typically are limits on how much and how fast those rates can rise.

So it is valuable to know that as each monthly payment shrinks the size of your home debt over time, that remaining mortgage serves as a potential buffer against the long-term economic cycles that could bring inflation, making almost everything more expensive, including San Diego real estate – even as the payment on a fixed mortgage remains the same.

Chuck Buxton