The effect of inflation on the mortgage payment. |
Remember when you got your first house or your first car note? You wondered how you would ever make the payments. As time went by it seemed the payment was easier to handle. One of the reasons is the impact of inflation. When you look at the effects of inflation, the dollars we have today are our most valuable. Since you can lock in your mortgage for 30 years, you would benefit by not prepaying your mortgage with inflated dollars and keep your money invested with the opportunity to perhaps keep up with or ahead of inflation. The dollars you have today are your most valuable. Prepaying with inflated dollars would be more beneficial when looking at the time value of money. |
This screen answers the question: "In TODAY'S DOLLARS, what will my (fixed rate) mortgage payment feel like in the future?" This question is answered using the following equation: future monthly payment = today's monthly payment / (( 1 + inflation rate)^ years) where the ^ means raise to a power or exponentiation. |