what happens to my mortgage if hyperinflation hits?

[Klark Cent]

if my payment is $1000, and a then suddenly a loaf of bread costs $1000, what does that mean?

i assume they will rework my mortgage somehow. how might that work?

thanks

[TXBullion]

what are your loan terms? fixed, arm?

[Klark Cent]

what are your loan terms? fixed, arm?

30 year fixed

[68Camaro]

If true hyperinflation hits, who knows. TPTB can change the rules, so I'm not betting on being able to max out debt and then pay it off with vastly inflated USD. (Unlike the Feds.)

[Bluegill]

if my payment is $1000, and a then suddenly a loaf of bread costs $1000, what does that mean?

Life will get real miserable real fast, unless your wages keep up with inflation (which they NEVER have, ever, in recorded history).

If by some miracle they did, you would be in good shape. Because now your loan payment will be a substantially smaller percentage of your income.

i assume they will rework my mortgage somehow. how might that work?

Based on what? If there is a home loan contract out there that has a provision for adjusting for high inflation, I've yet to see it. The only way I see that happening is if a new currency is issued to replace the collapsed dollar. But don't for a minute think it will be in your favor in any way shape or form. Like the casinos, the bankers always win. Nor do I see the dollar getting flat out replaced anytime soon. Lots of added zeros like Zimbabwe, but not replaced.

What about the people who took out 30 year loans 25 years ago. As a child of the early 80's, I can tell you there has been a whole lot o' inflation in the last 3 decades. Those folks don't get a rework of their terms for inflation.

You have to keep thing in perspective. 30 years of inflation is business as usual. Have that same amount of inflation in the span of a year, that's hyper inflation and the natives are getting restless.

Either way, nobody is getting a rework. Not unless it is in the bankers best interest...

[Klark Cent]

basically, i am wondering if NOT paying extra toward my mortgage can be thought of as a hedge against hyperinflation or against just high inflation in general, a collapsing dollar, etc.

i would instead put that extra money into something solid like toilet paper or silver.

[knibloe]

It is always a good thing to be debt free.

[Lemon Thrower]

in a country that honors the rule of law, you will come out ahead since you can repay your mortgage with hyperinflated dollars. so you will be honoring the terms of the contract, and the bank is or should be hedged to the value of the currency.

what happens in the USA is anyone's guess as we no longer follow the rule of law.

personally i pay the minimum on my mtg and save the rest in pms or investments i expect to outpace inflation. but you definitely want a fixed, not variable, rate mortgage.

as somone above noted, your ability to survive a hyperinflation depends on your access to income/assets that do not depreciate in the inflation. pms do this, but you would have to sell them off to eat. most 'jobs' do not do this unless you are unionized or an exporter. the trick this time is the hyperinflation may be worldwide.

[Treetop]

I think I potentially have an advantage having bought my home through a real estate contract. there is no bank. There is only a title company I pay, who pays the women who holds the note on this place. Id think it less likely such a loan could be valued into a new currency or something similar.

[Mossy]

basically, i am wondering if NOT paying extra toward my mortgage can be thought of as a hedge against hyperinflation or against just high inflation in general, a collapsing dollar, etc.

i would instead put that extra money into something solid like toilet paper or silver.

Paying off the loan is a good hedge against losing your job, which can happen even without inflation.

[Engineer]

Rule #1 - The banks always win
Rule #2 - See rule #1

[BooBoo1000]

Quit eating bread and pay off your house.

[John_doe]

Rule #1 - The banks always win
Rule #2 - See rule #1

agree. unless there is a currency collapse.


it all depends on how long they band aid it. if the dollar just collapses is going to leave you in an entire different situation than that of a prolonged collapse.

[coincrazy]

Disclaimer: I don't own a home.

if my payment is $1000, and a then suddenly a loaf of bread costs $1000, what does that mean?

i assume they will rework my mortgage somehow. how might that work?

It means that it's going to be much harder to make your home payments because all your mortgage payments are going to be spent or consumed on $1000 bread, oil products, electricity etc.

basically, i am wondering if NOT paying extra toward my mortgage can be thought of as a hedge against hyperinflation or against just high inflation in general, a collapsing dollar, etc.

i would instead put that extra money into something solid like toilet paper or silver.

The EXTRA you do not put towards the mortgage is causing you to accrue more interest. Paying down debt IS SAVINGS. I would make the minimum payments until I had at minimum a few months supply of food, water and energy stored up. Pay off all higher interest rate payments first like credit cards, car loans, and variable rates. Then pay on the house. I wouldn't start moving too much money into metals until you have all the toilet paper and other survival items acquired and stocked up. In my view metals are good to acquire a little over time but don't dump large chunks of cash into them if you're not prepared to be camping off the grid for weeks at a time first. All we have to do is look for some examples of hurricane Sandy to find unprepared people. A few D cell batteries or a 5 gallon can of gas would serve them much better than a few ounces of silver or gold.

I look at everything like it's a hopper/bucket/silo of capital. Savings account, IRA, Bills, Debts, Prep goods, Food storage, Guns&Ammo, AU&AG. In my model I try to keep debts as low to minimal as possible while maintaining everything else at a balance based on my current weighting of each bucket. I wouldn't have 100K of food at home but I might keep 10K of food at home and 100K in the IRA so I'm 10:1 weighting between IRA & Food stores.

If you want to create wealth, it will help to understand what it is. Wealth is not the same thing as money. Wealth is as old as human history. Far older, in fact; ants have wealth. Money is a comparatively recent invention.
- Paul Graham

Comes from this: http://paulgraham.com/wealth.html

In my view, paying off the mortgage should be top priority. Until it's paid off you don't "own" a home you're just living in a hypothecated asset the bank is letting you use until they don't.

[Lemon Thrower]

if you had a crystal ball and knew that inflation was coming, you would come out ahead buying pms rather than paying down your mortgage.

paying extra principal is savings only to the extent you can realize the value. its not savings but rather creating equity or at least moving you in that direction.

the opportunity with an inflation is to hold an asset that will appreciate and then repay the loan with inflated (less valuable dollars). the dollars you repay over 30 years will buy less gold than the dollars you have in your hand today that you are thinking about giving to the mortgage company early. yes, you save interest, but in an inflation like the kind we have now where gold has been going up 10+% per year you come out ahead by not prepaying your mortgage and using those funds instead to buy gold.

if the currency collapses there will be chaos and you are better buying food and guns. short of a complete collapse, like a weimar situation, you might sell an ounce of silver and pay off your mortgage. that is an extreme example.

a mortgage is simply a legal interest in real property that is tied to a debt; if you repay the debt the mortgage is irrelevant. the idea with a hyperinflation is that it will be easier to repay the debt in the future.

there are good points made about the risk of losing your job and teh risk of your salary not keeping up with inflation, but while they are accurate they are largely red herrings. if you have X dollars today to either pay down your principal or buy gold, you are better buying a gold in an inflation because gold can be expected to go up in value, you sell it for more dollars, and then repay the mortgage profiting by the increase in value. this remains true whether your salary is fixed or you lose your job. the only thing that alters it is if we have deflation rather than inflation.

[NDFarmer]

In my view, paying off the mortgage should be top priority. Until it's paid off you don't "own" a home.

You don't own your home even AFTER it is paid for. It costs me almost $250.00 a month to live in my home and that is only going to go up. And I will be paying that the rest of my life.

[coincrazy]

@NDFarmer: 100% correct. All our non-natural ills can be traced back to government meddling.

http://www.youtube.com/watch?v=Z0DUFjcHGO8&t=1m41s

[Mossy]

We need housing no matter what. Just one of those required expenses.

A very small number of people can finagle houses into investments by renting or leasing them and buying/selling on market flexes, etc, but most of us only have one house (or equivelent) so calling the place we live an "investment" is idiocy.

So. Do you have some place to live if you lose your job and the bank forecloses? If "Yes", then putting money in other resources might be a good idea. If "No", where do you plan to live?

[Lemon Thrower]

if you buy pms instead of paying down your mortgage, AND if you happen to lose your job, then sell some of the pms to pay the rent in a new place.

the whole idea of losing your job is good preparedness but really a red herring - it has nothing to do with how a hyperinflation will affect your mortgage payment.

there is a spiritual benefit to getting out of debt, and that is why a lot of very wise people will tell you to pay down your mortgage. but if you read about the Germany hyperinflation that was the wrong course of action because you end up with fewer assets that survive the hyperinflation. you may have a roof but no food. if you keep your mortgage, you have a roof and food and the bank gets paid back with hyperinflated currency.

[NHsorter]

I agree with Lemon Thrower on this one.

And off topic a little... Once the domino's start falling, interest rates are going to go way up and that is going to kill home values too. So, while owning a good piece of land where you can grow your own food is excellent, I am personally not too confident in real estate as an investment at these prices.

[Mossy]

I agree with Lemon Thrower on this one.

And off topic a little... Once the domino's start falling, interest rates are going to go way up and that is going to kill home values too. So, while owning a good piece of land where you can grow your own food is excellent, I am personally not too confident in real estate as an investment at these prices.

Hmmm, yeah. Property taxes. The gov't is going to get a slice, no matter what. Unless you are rich enough to own the local gov't.

If you only have one place, the value of a home is how much you have to pay for shelter otherwise.

[Bluegill]

I agree with Lemon Thrower on this one.

And off topic a little... Once the domino's start falling, interest rates are going to go way up and that is going to kill home values too. So, while owning a good piece of land where you can grow your own food is excellent, I am personally not too confident in real estate as an investment at these prices.

That right there tells one that real estate is still over priced. The current prices are still the result of distortions in the market from cheap credit. I've been warning, and catching flack, but I still maintain the housing bubble has not finished popping.

[NHsorter]

Yeah, property taxes. If you don't own you still pay property taxes. It just gets "laundered" through your landlord. So really it does not apply to the argument if you are talking about a primary residence.

Bluegill, I agree that prices are artificially inflated by artificial borrowing rates. But it's nothing that major inflation should have much trouble offsetting quickly.

[theo]

Having a fixed mortgage during high inflation would generally help the debtor. However, if the currency completely collapsed the government would likely declare that all mortgage be expressed in "new dollars" which would likely be worth 100 old dollars each. This might be a breach of contract, but good luck taking the government/bank to court.

[Lemon Thrower]

Having a fixed mortgage during high inflation would generally help the debtor. However, if the currency completely collapsed the government would likely declare that all mortgage be expressed in "new dollars" which would likely be worth 100 old dollars each. This might be a breach of contract, but good luck taking the government/bank to court.

its theoretically possible since the rule of law went out the window a long, long time ago.

however, the government is not hyperinflating for no reason. its because they are the biggest debtor. there will be a default of some sort. we have already seen it. first, the govt renegged on gold on silver certificates. then on exchanging u.s. debt for gold. then they started taxing social security. soon they will means test social security and medicare - deny it to anyone with other income. its just a default by a different name. eventually holders of govt promises will be repaid with dollars with much lesser purchasing power. that is the hidden theft, and that is the entire point.