muses of the moment

July 27, 2012

What happens to mortgage debt in a hyperinflation?

Filed under: Hyperinflation — totallygroovygirlfriday @ 8:20 am

This is a trick question.

In theory, you are paying your mortgage debt with less valuable “dollars”. However, this theory makes a lot of assumptions to turn out in your favor.

In a real hyperinflation, or even a severe inflation, you will be spending so much of your income on food, energy, and auto gas that you will not be able to afford to pay whatever small monthly amount your mortgage (or any other debt) has become.

This theory also assumes that you 1) have a job and 2) the company you work for is solvent enough to increase your wages at the same rate and timeline as the hyperinflation/inflation. The last decade proved that even if your employer increased your wages with the official rate of inflation, you fell behind the real inflation rate around 5% per year.

The best thing to hope for is the government puts a hold on all debt until the currency is “revalued”. Then you have to figure out if your debt just got larger in real value during the “revaluation” process and you are actual saddled with more debt than you had before in real terms.

Pay down debt. It will make your life easier in a hyperinflation, cost-push currency inflation, currency collapse/revaluation, or extended loss of employment. One or more of these events will happen in the next 10 years.

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