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What happens to mortgages during high inflation?

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  • Thu, Mar 04, 2010 - 04:42pm

    #11
    Peak Prosperity Admin

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    Re: What happens to mortgages during high inflation?

Thats an interesting comment Morpheus.  The idea of a wealth tax keeps popping into my head as being quite likely.  The numbers out there are getting exponentially worse.  The government might have no choice but to do a progressive wealth tax on stocks, bonds, and cash.  Makes me want to go buy a bunch of stuff before the cash is taken in one form or another.  Geez, I guess thats an inflationary comment in itself – but not for reasons of devaluation but rather fear of wealth taxation!

  • Thu, Mar 04, 2010 - 06:18pm

    #13
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    Re: What happens to mortgages during high inflation?

[quote=derfman64]

It seems to me that hyper-inflation would just reward those with too much debt (mortgage, car loans, HELOCs etc…) and hurt those who have saved and maintained manageable debt. Wouldn’t deflation be the greater worry here?

[/quote]

EXACTLY!  And who’s the biggest debtor in the history of mankind? The U.S. Federal Government. That fact alone, more than any other, argues for a hyperinflationary outcome. IM(also economic ignoramus)HO

  • Thu, Mar 04, 2010 - 06:34pm

    #12
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    Re: What happens to mortgages during high inflation?

Thanks for the link rickets.  I thought it was interersting to note that the list of people who think that housing prices will rise are the same folks who get to make the rules (.gov and banks mainly) and the logical rules (higher interest rates, retirees, flood of forclosures waiting in the wings, etc.) dictate a continuation of falling prices.  CM and Morpheus make a good point about contract law and what’s been done so far during this crisis.  Just connecting the dots between what should logically happen and what .gov/banks want to have happen.  Haven’t we all been surprised again and again by how this crisis has unfolded since the Fall of 08′?  Why should logic rule going forward?  Will logic eventually rule? 

Well, that said, I still feel nervous about renting even with my home worth less then I owe.  The idea of increasing rents at some point and the possibility of inflation say to me “stay where you’re at”.  Having 3 pets and wanting stability for my kids when they come HOME is something that I can’t help but keep in mind.  I say it’s a gamble either way.  We’ll see.

  • Sun, Mar 07, 2010 - 05:04am

    #14
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    Re: What happens to mortgages during high inflation?

Thanks everyone for great answers. You confirmed things I had suspected but wasn’t sure about.

My wife is interested in looking for another house.  Although we’re not under water on this house, the link that rickets provided is very convincing that we should wait.  The problem is that when we want to look for a house when the prices are low, it will be hard to sell our house.  The solution to this is to sell now and rent, then buy when prices come down. But, then there’s the uncertainty of the future.  Will I have a job and qualify for a mortgage when I’m ready to buy?  I think this is what rocketgirl was saying.  I’d rather take my chances with what I have now then get stuck in a bad situation where the rent keeps going up and tracking with (hyper)inflation.

[quote=Morpheus]

The last paragraph pretty much sums up what I meant. And I wasn’t kidding about changing the last post-facto. What I believe COULD happen is that they government would step in as an enforcer of debt to the banking system, and rewrite contract law under the pretense of “saving the system from apocalypse”, then scale up everyone’s fixed rates in proportion to inflation. It’s the most frustrating part of watching Washington work these days. They seem to take carte blanche in invoking arbitrary rules under the pretense of “emergency”

[/quote]

I agree, the government could just change the rules of our mortgage contracts as they’ve done to other contracts recently.  However, if they did that wouldn’t it mean that most home owners would get priced out of their homes?  I’d think there would be massive revolt if that were to take place.

 

  • Sun, Mar 07, 2010 - 02:24pm

    #15
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    Re: What happens to mortgages during high inflation?

I’ve looked at it one other way. Let’s say right now, you want to buy a house and need a $150K mortgage. You can currently get a 30-year mortgage at 5%, for a monthly payment of $805.23. Now, let’s assume that house prices will continue to drop, as I believe they will, AND, interest rates go up from here, also as I believe they will. Let’s assume the home prices drop so in a year or 2, you only need a mortgage of 130K, but that interest rates are now up to 7% on a 30-year. The payment is now $864/month.

So to me, I’d rather lock up debt at a lower per month cost now while I can, insulate it, grow food, buy more gold, etc, and obviously hope for the best.

  • Mon, Mar 08, 2010 - 06:04pm

    #16
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    Re: What happens to mortgages during high inflation?

I am new to posting on the boards but, I have been coming here for over a year now. And I must say, the Crash Cours has really been an eye opener for my husband and me. So thank you Chris for the great information and, thank you to the people that continue to bring us great information on a daily basis.

 

To my question, since it is not a good time to buy, which I feel is correct. Should we refinance? We get quite a few offers for this but, my husband is not so sure it is a good idea. We have a mortgage of $146,700 with a 6.0% interest. This  was the  interest rate when we baught the house 4 years ago. Should we take the plunge and refinance for a lower interest rate being that the rate is lower than what we currently have. It will be a fixed rate, the same as we have now. Any suggestions?

  • Mon, Mar 08, 2010 - 06:18pm

    #17
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    Re: What happens to mortgages during high inflation?

[quote=mackswife34]

I am new to posting on the boards but, I have been coming here for over a year now. And I must say, the Crash Cours has really been an eye opener for my husband and me. So thank you Chris for the great information and, thank you to the people that continue to bring us great information on a daily basis.

 

To my question, since it is not a good time to buy, which I feel is correct. Should we refinance? We get quite a few offers for this but, my husband is not so sure it is a good idea. We have a mortgage of $146,700 with a 6.0% interest. This  was the  interest rate when we baught the house 4 years ago. Should we take the plunge and refinance for a lower interest rate being that the rate is lower than what we currently have. It will be a fixed rate, the same as we have now. Any suggestions?

[/quote]

I would definately refinance.  You should be able to find one that can roll the closing costs into the new loan and still save around $100 a month.

  • Mon, Mar 08, 2010 - 06:19pm

    #18
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    Re: What happens to mortgages during high inflation?

[quote=goes211]

[quote=mackswife34]

I am new to posting on the boards but, I have been coming here for over a year now. And I must say, the Crash Cours has really been an eye opener for my husband and me. So thank you Chris for the great information and, thank you to the people that continue to bring us great information on a daily basis.

 

To my question, since it is not a good time to buy, which I feel is correct. Should we refinance? We get quite a few offers for this but, my husband is not so sure it is a good idea. We have a mortgage of $146,700 with a 6.0% interest. This  was the  interest rate when we baught the house 4 years ago. Should we take the plunge and refinance for a lower interest rate being that the rate is lower than what we currently have. It will be a fixed rate, the same as we have now. Any suggestions?

[/quote]

I would definately refinance.  You should be able to find one that can roll the closing costs into the new loan and still save around $100 a month.  It should pay for itself quite quickly as long as you don’t move in the next year or two.

[/quote]

  • Fri, Oct 22, 2010 - 05:02pm

    #19
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    Re: What happens to mortgages during high inflation?

 

  Hi All,

   We just renegotiated our mortgage from 3.6 variable rate to 2.35 (-.65 below prime) and paid a $600 penalty but no fee to lock in when we want to.  The term is 5 years.  This is in Canada and we have a small house.

  I totally agree with Chris that having as little debt as possible is the way to be.  At the end of the day even if you’ve completely anticipated Nostrodomos-like the direction of the housing market and inflation, you might still be faced with the following possibilities:

a) you don’t have a job in the future
b) you’re able to pay off your mortgage with your 10 ounces but starve to death due to higher food prices
c) the governement/banks change the rules or get a bailout

  A word from someone who lived through the crisis that hit Argentina would be interesting and enlightening to hear right now.

  Finally a question I have is even if you pay off your house could you still be over burdend with land taxes eventually forcing you out of your home?

 

  • Fri, Oct 22, 2010 - 07:20pm

    #20
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    Re: What happens to mortgages during high inflation?

I am sure the the Government will step in to “help the people” and declare a temporary moratorium on mortgage payments and in “the interests of equality and fairness” forbid any payments whatsoever. 

This will allow the banks to keep the balances until the money is “revalued” and the price of gold “properly fixed.”

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