The Real Estate Edge

The Real Estate Edge

How does inflation affect mortgages

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There are lots of factors that can affect your mortgage. This includes the market value of your property, the commercialization of your neighborhood, or even the upgrades that you do to your house.

 

However, one of the primary factors that affect mortgages worldwide is inflation. In this blog, you’ll know all about inflation and how it affects your mortgage.

 

What is inflation?

 

Inflation happens when the prices of essential goods go up. This includes food, petrol, and others. This phenomenon affects the purchasing power of people. When prices of goods go up, salary and income don’t always increase immediately. This lessens the power of people to afford the essential commodities that they need.

 

In short, the value of money decreases. Say $10 can buy you a burger. When inflation kicks in, you might not be able to buy the same burger with your $10. You will need more money.

 

How does inflation affect mortgages?

 

Housing is considered an essential commodity. And it’s directly affected by inflation. What is originally owed to the banks or lending companies no longer carries the same worth for mortgages. Borrowers return money worth less than when they originally borrowed.

 

So, the action of the banks or lending companies would be to increase your monthly payment. This way, they can get the value of the money initially owed.

 

How to stop inflation from affecting your mortgages?

 

It’s impossible to stop inflation from happening as it occurs on a national or even international scale. But there’s something that you can do to hinder its effect on your mortgage.

 

To avoid this, you should go with a fixed-rate mortgage. Unlike mortgages with adjustable rates, fixed-rate mortgages are not affected by inflation. In contrast, you can’t change your monthly payment.

 

However, the only downside of a fixed mortgage is that it’s always relatively higher than adjustable rates. But then again, whatever happens, you will never be shocked by a sudden increase in your monthly due.

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