Mortgages, Deflation, Inflation

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  • Fri, Dec 05, 2008 - 07:16pm



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    Mortgages, Deflation, Inflation

Hi all,

I have a quick question that I would love to get some valuable insight on as the mortgage brokers, escrow agents, et al seem to be unable and/or unwilling to answer these questions!

I have a house I am trying to decide to keep or sell. Let’s just assume I could sell it and break even…and then be debt free.

The dilemma is whether this is a good idea or not based on the probable future…deflation followed by inflation…or regardless or order, I am curious how mortgages and home ownership looks under these two economic scenarios.

Again, let’s assume that rental rates are the same as a mortgage would be (ie, $1000/mo) for now.

It seems to me that in DEFLATION…you would be happy to be rid of the house, at least in its early phases, during which time you look for a cheaper home to buy.

These are the possible issues I forsee:

 1. You have a narrow window of time before inflation may start

2. The banks may not willing to lend to buy this new house

3. Interest rates could already be heading up

In which case, you may not get the new place and would be stuck renting when you didn’t want to.

For the INFLATION game, it seems one would be better off with a fixed rate mortgage.

 Am I correct in thinking that rent among other things will skyrocket, while my mortgage will stay steady? (Of course, I wonder if this will actually hold in a hyper-inflation scenario…when bread can cost $100 per load and my mortgage is $1000/month)…

By the time inflation hits, properties would cost even more and interest rates will be higher…

Thanks for your thoughts…Lisa


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