Effects of Hyperinflation on a Mortgage

What are the affets of hyperinflation on a mortgage?

1 Answer

The effects hyperinflation will have on your mortgage will depend on what type of mortgage you have. In an economy with hyperinflation, the value of the dollar decreases so it takes more dollars to buy the same product it once did. Because the cost of living (general living expenses) will increase dramatically, the amount of money you make should increase dramatically as well - to offset and meet the demand of rising prices.

The question is what will happen to a mortgage. The answer depends on your loan program. The best situation you can be in during hyperinflation would involve a fixed mortgage product. This would mean your monthly mortgage payment will not increase despite the cost of living rising and you getting a wage increase. In theory this should make paying off the mortgage easier. You have more dollars. On the other hand, if you are in an adjustable rate mortgage, the index will most likely follow inflation forcing your rate up as the value of money decreases. This situation is dangerous, because despite caps on adjustables the payment increase could be dramatic causing you problems making payments.

Bottom line, should hyperinflation hit, you want to make sure you are in a fixed rate program to take maximum advantage.