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Why would you do this in a time of high inflation?
by bgorman 4y ago
Why would you do this in a time of high inflation?
- h4waii 4y agoIdeally, so you have a place to live, regardless of the outcomes and influences of inflation et al. Sure, buying real estate is seen as an investment, but it's also a spot to live and to keep all stuff to help or hedge your enjoyment of life. Some people just want to live, debt free, and be left alone.
- vba616 4y agoI am concerned with having a place to live, as distinct from preserving my current home. If I ever have to leave my doomed home with only what I can carry, I'd rather owe as much as possible at that point in time. I think that debt owed to human beings is strictly better than the same amount of equity just vaporized with no possible recourse.
- tjansen 4y agoDuring an inflation your salary is likely going up, and so are all other assets that you own or buy. Let's say you owe 100000 EUR for a 200000 EUR house, pay 2% interest, inflation rate of 10%. Your net worth is 100000 EUR in the first year. If you repay 8000 EUR, the next year you owe 92000+2%*92000=93840 EUR and your net worth is 220000-93840= 126160 EUR. If you repay 4000 EUR and invest 4000 EUR in gold, next year you owe 100000-4000+2%*96000=97920 EUR, your gold is worth 4400 EUR after inflation and your net worth 220000-97920+4400=126480 EUR. Plus you have improved liquidity. If the inflation rate is higher than the interest of your loan, it's often better to invest in inflation-proof assets.