If your mortgage interest rate is less than inflation, pay as slow as possible and let the inflation eat the principal.
Unless you are paying insurance, in which case the (article’s) argument is that you end up paying more overall.
I have often wondered why high school math does not teach annuities and perpetuities, after all they are something we will absolutely all encounter as a car loan, mortgage or pension.
> If your mortgage interest rate is less than inflation, pay as slow as possible and let the inflation eat the principal
And if you’re going to save the difference. If you won’t, the mortgage is a decent forced-saving tool. (You also want to be sure you’re using a regional inflation measure that reflects your actual costs.)
If you have a $200K loan (debt) today. If you paid it off today with a $50K/year salary that would be 4 years of work. If you paid it off in 30 years, typically salaries might be be $200K/year (because of inflation) so it would only "cost" 1 year of work. You can't actually wait 30 years to pay it all off, but by drawing it out, you get some of the benefit.
I see, so every time you pay the interest, you're losing x% of the loan in current dollars, but the loan is getting cheaper in real value by y%, where x is the interest rate and y is inflation. So despite paying more dollars overall by the end, you're paying less real value overall. I guess the risk is that y falls below x later, at a time where you would have paid it off if you had been doing extra payment, so you increase your payments, but maybe the change could be dramatic enough to undo the benefit?
You also get to write off the interest on your taxes, if you deduct. So the total “current dollars” is actually lower. It seems negligible, but is a real number to those with high incomes and high cost of living.
Because many teachers dont underatand that stuff and hace no incentive to learn it because they hace defined benefit pensions and job secyrity through seniority, atleast in my experience. Having teachers on a completely unrelated financial oath to thwir students is pretty actively detrimental.
Unless you are paying insurance, in which case the (article’s) argument is that you end up paying more overall.
I have often wondered why high school math does not teach annuities and perpetuities, after all they are something we will absolutely all encounter as a car loan, mortgage or pension.