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Mortgage Vs Rent

By madhu on February 29, 2016
Normally when we talk about inflation, we talk about the gradual decrease in the purchasing power of a dollar. Although inflation works to our disadvantage when it comes to purchasing power,

Did you know that your mortgage may not be as expensive as you think it is ? mortgage with a fixed unnamedinterest rate, which holds your payment constant, your mortgage is cheaper than you think it is.

It's due to Inflation.

For example… Say you take out a 30-year $200,000 mortgage at a fixed rate of 6.5%. Your monthly payment would be $1,264.14. Your total payments over the life of this mortgage would be $455,089 of which $255,089 would go to pay interest. However, that’s not entirely accurate because we aren’t factoring in inflation.

Normally when we talk about inflation, we talk about the gradual decrease in the purchasing power of a dollar. Although inflation works to our disadvantage when it comes to purchasing power, the opposite is true when it comes to paying off a mortgage (or pretty much any type of loan).

If inflation averages 3% per year, in 10 years, the $1,264.14 payment would have about $941 in purchasing power. In other words, had the mortgage payment increased with the inflation rate, the payment would be nearly $1,700 per month. However, the mortgage payment is still just $1,264.14.

To secure the best financial outcome in your current position, please contact Madhu today for an obligation free chat about your home loan on 0425 341 086 or financeandmortgage@gmail.com.

Article written by madhu

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