Owning a home is one of life’s great ambitions. In this country, It’s so much more than just owning a property — it symbolizes or at least used to symbolize years of hard work, security, and settling down. It is estimated that over 44% of Americans have a mortgage, and mortgage rates are close to the lowest levels in history. In today’s video, we examine something that may surprise you in regards to inflation and mortgages, something that breaks the ordinary level-headed line of thinking when it comes to massive debits, which are supposedly meant to be paid off as quickly as possible. To understand where I’m headed we first have to examine one of my favorite internet finance gurus, Dave Ramsey. If you had listened to Dave and his principles over the last 20 years, you would undoubabley be much more financially secure than listing to almost every other finance expert in the world. He promotes simple healthy principles to live by and looking at his baby steps program you can see exactly the way this philosophy is structured. Paying off debt, accumulating an emergency fund, and building a retirement balance that puts you and your family into a stress-free life where you control your own destiny.
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This is a common misconception. Inflation only errodes debt if your income keeps up with inflation. You can't pay off your principal at the end of 30 years when your income will be the same and worth less because of inflation.
As Dave keeps saying, stop listening to your BROKE uncle about how to manage money. Id bet Dave has more money and better financial practices than most people in the comments and MHFIN
I’m not sure comparing the current situation to Yugoslavia coming out of communism and a war makes a lot of sense either.
This rollercoaster interest rate pattern is known as wealth cycles. When rates are low, invest in real estate and paper stock assets, and when rates are high, invest in precious metals and crypto. Diversify with purpose like wealthy investors. The problem today is that rollercoaster has been stalled by low interest inflation.
In the 70s companies were not shutting down like dominoes.
And if the dollar crashes like the civil war south what good is it?
Banks NEVER LOSE! If inflation is too high, banks will order de government (they have more than enough power to do that) to reevaluate houses in the same way as they did after de depression of 1929. This example from Yugoeslavia does not apply to the western economies. Yugoeslavia was communist, which means that the bank was owned and run by the government. In the western world banks own governments.
Paying your house early has nothing to do with interest savings…………..it's about living a mentally clean, stress-free life.
So what happens when we go into a deflation period? Its probably going to start in September.
Eh nothing new here. Ppl that try to pay the mortgage asap are fucking retards. Even with millions l would let pay the banks my home and let inflation do the rest. Simple af
Don’t worry blackrock will buy your house at 20% over asking price.
Link for that inflation / mortgage repayment calculator?
there is no fixed rate mortgage in Bulgaria, there is one bank that offers it and most people do not qualify
The borrower is still slave to the lender. You can not find a place in the Bible where debt is a positive things. I’ll stay with Dave!!!
When inflation comes doesn't mean the wage grows too.
Your math sounds one hundred percent right, but you still not disagreeing with Dave, Dave is talking about the emotional affect that people without any debt have, which helps someone like me and millions other that don't know exactly economics, rates, inflation,etc, just simple working and save up some cash to retire with dignity.
There are not shortcuts to protect yourself, the best method is timing. Old people who have paid or are about to pay up their mortgages are the ones that could suffer less as they only have to compensate for the increase of daily expenses, as long as they have an small job and know how to make a living they can get by. Those who got into a huge mortgage recently could lose their properties. Having small companies is also a formula for losing a lot of money. Thinking wisely, cutting on expenses, buying second hand utilities, being cheap and securing a decent job would also help, but it's not easy task, most young people will be left out of the real state and job markets and that's the real drama all around the World. Besides all of that, having a good health, no debts and self steam to start over once the recession ends it's also the most common scape after a huge crash in History. But please don't get into a mortgage if you can not pay it in less than 4 or 5 years or the interest rates will hit you.
You’re wrong because high inflation would create a rise in interest rates and with both private and government debt at there current levels will cause a deflationary outcome . Also the same rules for hyperinflation don’t apply to the USA due to it being the world reserve currency which creates a demand outside of the United States. Commodities trades , debt issuance and payment etc unlike your example in Croatia
Follow Dave if you want to be "average". Educate yourself and make your own decisions. Everyone's situation is different and financial advice isn't a one size fits all…
Get ready for how Deflation crushes the real estate markets.
Even with inflation, you still have to pay the $300,000. Even if the value is lower-that means you work harder for less buying power!
At the same time, you don’t own your home and that means it can be taken from you, just interview anyone who lost their house in 2009…
Please share the link for the mortgage rate calculator shown in the video.
Paying a mortgage early also takes your cash and you can't use it again like a line of credit. You won't have more cash until you pay it off and in the meantime, you lose interest on your savings or investments used to pay it off…..that being said I'm still considering both sides of the issue.
Why this millennial doesn’t understand the unstable employment market.
This doesnt apply for a variable rate mortgage
Keep in mind salaries are not keeping up with inflation.
And inflation will kill the borrower when property values go down as boomers die off (largest group of real estate owners)
I am not a ramseyite but I think you misrepresented him here. Ramsey acknowledges that there are financial nerds that prove how there way is better than his if people followed their way, I.e his plan to pay the lowest balance credit card as opposed to the highest interest credit card.
Ramsey’s response is that his way is better because financial problems that people have are not mathematical, but emotional. People don’t get into trouble because they had a thought out financial plan, followed it, and realized later they were mathematically wrong.
Thought this was a Ramsey video. The old bait and switch. Well played
Inflation maybe good for long term finances, until you LOSE your job and can't pay the mortgage, and in tern lose your house.
Except there is a housing collapse coming too
Pay off the mortgage and invest the money you would of used to make the payment
No matter the stock market crash one needs to have different portfolio, l already invested in forex and crypto which are really profitable.
It's simple. If you see inflation coming, you should borrow while interest rates are low, because if they will be lower than the inflation, you're actually paying back LESS than you borrowed, in today's dollars. Furthermore, inflation will cause a lot of assets to rise in price (including possibly cryptos, assuming they aren't in a huge speculative bubble right now already), as well as wages, as well as the cost of services. So literally you should try to get your credit cleaned up, borrow money and then deploy it over the next several years in various business and investment opportunities.
On the other hand, if you see a recession or even a depression coming, but interest rates are somehow really low (because of quantitative easing), you should ALSO borrow money, because cash is king in those situations. You never know when you'll need to cover business deficits with more cash. However, if the recession continues for a long time, be prepared to become a static as many businesses will eventually default, and have to liquidate their assets. The difference between living on borrowed money during a serious recession and a period of serious inflation, is that in a recession, the bill will eventually come due. Limited Liability for companies, and bankruptcy protection for individuals (not having to go to a debtor's prison, as in former eras) are one source of freedom and entrepreneurship in the USA, and help people try new things. They are the reason you should always try to borrow money at low rates.
Both scenarios assume that the loan has to be at a low FIXED interest rate, not tied to the prime rate (like credit cards, and many personal loans, are). Examples are house mortgages and the EIDL loans by the SBA.
In one scenario, you borrow because you'll make more money than you have to pay back just by carrying on business and investment activities. In the other scenario, you borrow because cash during a crunch will be important, and you can even lend it out for much higher rates than you borrowed it. However, with everyone defaulting all over the place, don't expect to get paid back easily. Perhaps a better solution during deflation and depression, or capital flight in a given town, is helping create local currencies to supplement the dwindling federal money supply, like they did in Worgl and other towns. That's why I started https://intercoin.org
Making money is the plan and with Bitcoin Investment your plans can be fulfilled
Too many assumptions and too many variables
Your math is right and taking on debt in today's expensive dollars and paying back in future worthless dollars is a winning strategy. You missed the biggest lesson of the 1976-1982. Having a job and staying employed was hard. Being unemployed and having to sell the property at a loss might be the result.
The problem here is that people's income doesn't follow inflation. You are only gaining ground assuming your income at least keeps up with inflation. Additionally, you have cash tied up in maintaining this mortgage that could otherwise be earning 9% on average in other investments rather than the crumbs that are being inflated into existence.
Let's say you buy a 300000 dollar home on a 30 year fixed. According to your math you only paid $270000 in inflation adjusted dollars at the end of the term. Well if you double the mortgage payment, and pay the same mortgage off 18 years early, you still only paid $286,500 in inflation adjusted dollars, reduced the interest paid by $60,000 and, freed up $1300/mo in cash flow for other investments that will grow by 9% on average over the next 18.5 years. if you got a 15 year term to begin with, you would pay just $279,600. You are talking about gaining peanuts through inflation as if it is going to make you wealthy. It's not.
The reason to pay it off early (even if inflation is high) is because that money can then be put to better use, e.g. invest in the stock market which may yield a higher % return than the mortgage rate / inflation. So you have the feel-good factor of owning your home with no more mortgage payments and you can get more money into your pension sooner and it will then have more years to compound, which can make a huge difference. Sorry, but I think you've got this wrong and Dave is right.
Dave is awesome for people without self control. If math is your primary motivator you don’t need his baby steps.
The arguement to pay off your mortgage early is because most people who would take your new advice would simple blow the extra money. This advice is good, but is only smart if the person uses the extra money to re invest somewhere else to stay ahead of inflation. If they don't, they might as well pay off the mortgage to avoid the interest.
I don't think you considered what happens when the real estate bubble bursts and house values crash.
how do i leverage on the market conditions to better my portfolio
A lot of my folks are in huge tears, following the downtrend in the markets.
I’m seeing more for this dip.
I earn regardless and I appreciate the fact that I have a backbone.
Working with the team and taking expert advices and guidance has helped me a lot.
I’d be in the reply sections if anyone needs help.
Bernardmoore_official on "IG* has brought me out of poverty through investment i now know how to invest crypto i also made him my professional Broker cause i have being making a lot of "profit ever since big thanks to Mr bernard moore
When you have nothing of value to say and you want views you just put a famous person on your thumbnail. Loser.
Your assumption is wrong. In the 1980s, inflation is also tied with high wage growth. So the repayment on mortgage after many years is lower. You pay less year on year in the 1980s bcoz on high wage growth. Lock in the price now and pay with inflated wages. But in 2021, high inflation with no to little wage growth. Means everyone with big mortgages are paying more. Especially, after adding in all the other expenses. Not less.
MISREPRESENTATION OF RAMSEY: I am with you on inflation and long term debt but that is not the point for Ramsey's financial strategy. The point is not necessary the risk of taking on debt and the money lost ($162,000 in your example). The point is that the greatest wealth building asset is your own available income. If I have a mortgage payment of $2000 per month or more, then that money is tied up in trying to pay off my home. Even if I did get a free $65,000 because of inflation, that still entirely misses the point. If we just took half the mortgage payment ($1000) and conservatively invested that into a mutual fund yielding historic annual returns of 12% or even 8%, there is no comparing the financial position of the one without a mortgage who was investing and the one who held onto his mortgage at the end of 10 years, 20 or 30. Then with an average real estate return of 2.2% over the last 30 years, what do you really have? There is a UNIVERSE of difference between the one without a mortgage who invested and the one with who didn't over the same time period. So Ramsey's financial strategy is by no means outdated. Not even close. You simply misunderstood it with limited exposure and then misrepresented his material.
RAMSEY'S FINANCIAL KEY: The key to his entire financial plan is a new learned behavior. It is about developing a lifestyle of "discipline!" I mean come on, most Americans are no where near being on track for their retirement goals if they even have any defined goals. I sure didn't. I was WAY over my head in debt. Today, I don't have credit card debt, car loans or a mortgage. My wife and I both work and we live off one income. We use 20% of the second income to save for fun and the other 80% to invest every single month into 401k, Roths, ETFs and options trading. What most people are paying out every month in mortgages, cars and credit card bills, we are investing every month and let me tell you, outside of God and the love I have for my family, there are few things better than total financial freedom!!!!! It doesn't matter the economics conditions, what the markets do or even if I lose my job. We are financially free and own everything we have. We have an emergency account but I could pay my property taxes working at the gas station if I had to! No problem! No stress! NO WAY would I tie up my income again into a mortgage payment, car loans or credit card debt! It took us 4.5 years of extreme intensity to get rid of all our debt to financial freedom and I am never going back.