How Inflation and Time Can Effectively Pay Off Your Loan for You
How to use inflation to your advantage? Can you love inflation? Why on earth would you do that, I hear you say. Surely inflation is bad for us. It literally means that your purchasing power is falling and that the same amount of money will buy you fewer things. Inflation is something governments are forever trying to manage. So why would I say that we must learn to love inflation? Why would I say that inflation is your friend, that inflation will help pay off loans?
Why inflation is your friend.
Like it or hate it, inflation is a constant in any economy. Here in the United States, the rate of inflation fluctuates – sometimes, it is high, and sometimes it is low. This impacts lots of things: the price of goods and services, interest rates, bank deposits and loans, and more. The way inflation works is that something that cost us less before now costs us more. And yet, there are ways to use inflation to your advantage.
There was a time when I could post a letter for just four cents. Now, I have to use a postage stamp of 60 cents for the same letter. We could watch a film for about a dollar and a half, but now we have to pay about $16 for that. We are able to buy less for the same amount. However, your dollar remains as valuable and effective in one sense. There is one scenario where inflation is not detrimental; in fact, it is positively desirable!
How to use inflation to your advantage & make your money last.
That one scenario is when you buy rental homes using the 30-year fixed-rate loan. This is a way to use debt to make money. This type of loan is the most important aspect of an investing strategy. This type of loan is a financial instrument that fixes your mortgage payment at one specific amount. Inflation does not impact it. Price rise does not affect it. While the price of all else goes up, your repayment amount remains the same. What this does is it makes it easier for you to repay your loan over time.
While the dollar is becoming less valuable in other scenarios, the opposite is true for your loan. As the years go by, you find that your repayment amount seems to become increasingly negligible, making it easier for you to make your payments. So effectively, you are having your loan repaid by inflation and the passage of time.
ICG uses single-family home investments, bought in advantageous locations and the best U.S. markets. We enable you to enjoy the clout that comes from purchasing a multitude of houses, even if you only buy one.
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