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If inflation hits 4% and your mortgage is 3.5% you would be making 0.5% a year off the mortgage interest + the tax deduction you get from it. If inflation picks
by frockington1 5y ago
If inflation hits 4% and your mortgage is 3.5% you would be making 0.5% a year off the mortgage interest + the tax deduction you get from it. If inflation picks up to 70s levels, current homeowners will have a great time assuming they do not have a variable rate
- JumpCrisscross 5y ago> If inflation hits 4% and your mortgage is 3.5% you would be making 0.5% a year off the mortgage interest This ignores the rates-price and inflation-rates nexuses. When inflation goes up, ceteris paribus, rates rise. When rates rise, all else held equal, the price of leveraged assets like real estate falls. TL; DR this trade is an arbitrage only if you've perfectly hedged the price of your underlying asset, the house.
- frockington1 5y agoAgreed this is an overly simplified model. Another thing to keep in mind would be population dynamics. Are people moving out of the area the home is in (Chicago) or are people moving in (Nashville).
- runbathtime 5y agoThe hedge is refinancing out any market appreciation, like a piggy bank, keeping debt high while interest rates are low, you can always hand back the key if it goes south.