Home Loan - Does inflation help you reduce the amount of interest you pay?

[mysterion]

Hi Corydorus,

I think maybe you have misunderstood me. My question is not if I have a lump sum of money should I pay the housing loan and save on the interest or should I invest it as I might be able to get more than 2.6 % and thus stretch the loan for 20 plus years.

My question is more on : If I borrow in today's dollars and pay in future dollars for a fixed loan of 2.6 % for 25 years . In terms of total payment I would actually be paying less than what I borrowed as majority of the payment is in future dollars.

I wanted to validate if that is correct? Am I missing something there?

Hope that makes sense.


Thank you.

Only makes sense if inflation is higher than interest rates. Once interest rates increase beyond inflation, you will be paying more than what you borrowed.