This is a topic that often comes up, but once you pry, people usually overlook inflation. As an example, let's say you took out a $300,000 mortgage 30 years ago. The inflation adjusted cost of that today is $634,546 [0], so figuratively you end up paying more than double the sticker price just because of inflation.
Eh? This is totally backwards. The amount you owe is fixed, e.g. 300k. Inflation means that that 300k is worth less and less as time goes on. Therefore, inflation is a good thing for debtors!!!
No, it isn't backwards when you consider the perspective of the bank. They give you 300k now, if you only paid them back 300k in total they would be incredibly deep in the red. Interest is there to offset that fact and then some. Even if the bank ended up at net zero after inflation, they would still be deep in the red because of the opportunity cost. In other words, inflation means what you're paying back to the bank is worth less and less as the time goes on. Banks are not in the business of charity, so the debtors have to cover the gap, plus profit.
> In other words, inflation means what you're paying back to the bank is worth less and less as the time goes on.
Well yes, that's exactly my point. The $1 you pay back to the bank 25 years ago is worth MORE than the 1$ you paid yesterday. But you still only need to pay back a fixed $300k.
Obviously agree that interest paid is where the bank charges you for the loan, but your original point about inflation meaning your actually paying back the inflation adjusted value of the loan makes no sense.
I think this phrasing misses the point. If you paid back anything less than the inflation adjusted cost, the bank would lose money on the loan. Hence, the minimal amount you have to actually pay back is the inflation adjusted cost at the end of your mortgage, simplified to the 600k in the above comment. In the real world both inflation and interest happen continuously, but it's easier to exemplify without that fact.
What?? Something’s off in your statement. Inflation is actually a good thing when it comes to buying a house. You buy a house, get a (fixed) mortgage, and make set payments for the next 30 years. However, the payment amount never changes so as inflation takes effect over the years, your “real” payment gets cheaper and cheaper. In my case, the $1500/month I started paying in 2011 was worth a lot more than $1500 is worth today.
[0] https://www.calculator.net/inflation-calculator.html?cstarti...