Comments on: Got a Fixed Rate Mortgage? Root for High Inflation.

By: Len Penzo

Len Penzo — Fri, 12 Aug 2011 01:51:15 +0000

You make a great point! Although if the dollar collapses, you should in theory also be able to pay your home loan off almost immediately with what are essentially worthless dollars — regardless of how much you owed.

By: Anony mouse

Anony mouse — Thu, 11 Aug 2011 10:13:40 +0000

Well here’s the thing. A house is an asset and tangable. If you pay that off you have something physical you can sell. A retirement account while it is a monetary value is actually just a “possibility.” If the dollar collapses, your house will still be there and you will have whatever equity you have built up still in it, the faster you pay it off the better, but your retirement account won’t be worth squat.

By: JR

JR — Wed, 20 Apr 2011 20:48:56 +0000

I have the same problem. I could pay off my 200k loan out of savings but, with inflation coming and maybe even hyper inflation, I not sure. If interest rates on treasuries rise and even higher on short term bonds. I may be better off waiting and taking advantage of the high interest rates?
Let me know how your numbers work out. Thanks

By: Len Penzo

Len Penzo — Wed, 20 Apr 2011 20:48:56 +0000

JR: I decided to take the extra principal payment money (equivalent to one extra payment per month) and put it in a separate (relatively) high interest savings account for awhile. I will continue to collect and park that money there until I get more clarity on the inflation situation. If the Fed can somehow contain inflation by managing to remove the excess liquididty from the economy over the next several years (doubtful), then I’ll use that money to pay off the mortgage. If I see inflation rearing its ugly head, I’ll probably use the money to help buy inflation-resistant assets (like gold or real estate).

By: Stock Market Highs For 2009, Dividend Stocks, China IPOs

Stock Market Highs For 2009, Dividend Stocks, China IPOs — Wed, 20 Apr 2011 20:48:56 +0000

[...] Len Penzo: So are we going to have high inflation in our future? Len bets that we will (well, so do I!). He thinks we can potentially approach inflation in the double digits. If so, then this may be a relatively good thing for those carrying debt. If you’re a debtor, root for high inflation! [...]

By: Shawn A. Dorrance

Shawn A. Dorrance — Wed, 20 Apr 2011 20:48:56 +0000

Been reading for a few days now. It was very good and solid information. BTW, I like your site design as well. I enjoyed reading it and hopefully you will write more soon. Do you have a newsletter? How do I subscribe to the blog itself?

By: Aaron

Aaron — Wed, 20 Apr 2011 20:48:56 +0000

As difficult as it is to say on a blog dedicated to frugality, the possibility of inflation of this magnitude actually makes it possible to argue for getting into all kinds of debt, but only for appreciating assets.

Since the dollar will assumably continue to lose value as liquidity is injected, purchasing anything that will hold its value (houses, land, etc) with the constantly depreciating dollars seems like the most reasonable course of action.

By: Len Penzo

Len Penzo — Wed, 20 Apr 2011 20:48:56 +0000

The drawback though is that there is a risk of betting on the come, so to speak – if your bet is wrong, your financial position will most certainly be in dire straights.

By: Invest It Wisely

Invest It Wisely — Wed, 20 Apr 2011 20:48:56 +0000

Hey Len,

No long-term fixed-rate mortgages here. If you can lock for 5 years with a rate premium of ~2% and then end up having to pay whatever are the prevailing rates afterwards anyways, then variable starts to look a lot more attractive.

Then again Canada’s finances are in better shape so less risk of high inflation here, but it can’t be ruled out cause we’re still highly tied to whatever happens down south!