Inflation vs the lender/borrower

[Hogmauler]

So you find property that you want to purchase before “hyperinflation” sets in. As inflation increases money becomes worth less or worthless depending on how bad it gets. You’ve still got your land note and it’s locked in. So, your paying for your property with worthless currency?
Or if the bank gets in dire straights can they “call” your loan? Who benefits from debt during inflation?

[RiverRat1]

If you have debt (like bought a huge house) then you benefit IF you make it through the ordeal.

This is my opinion/thoughts.
1st - Should have bought before inflation like 2 years ago. No one knows when inflation will peak or slow down. Most things have already inflated 30-100% Sure inflation could stick around and be 8-15% each year for years.."could"

2. Most peoples pay will not match real inflation. So most will struggle (a lot) to pay that house note when everything rises in price that they must have like water, electricity, food, gas, etc.

3. If hyperinflation hit they will raise rates a lot. So long story you run the risk of being the person selling cheap to the guy with cash when you're desperate for money.

But if you can make it work you're correct IMO and would come out far ahead.. Assuming you bought something worth something that rises with inflation.
2.

[Bort]

RiverRat makes some good points, but in theory, it’s best to use debt financing as the value of a currency decreases due to inflation.

In my opinion, it’s one of the main reasons that the FED has kept rates so low. The government wants to pay the minimum balance on its debt with the lowest interest rate and with a deflating dollar value.

Here’s a good overview.

https://www.investopedia.com/ask/answers/111414/does-inflation-favor-lenders-or-borrowers.asp

[KactusKiller]

Here’s my opinion, like said above if you have “cash” try to buy as soon as you can but do not overpay. Long term fixed interest deb like say a 20-30yr locked interest note on a home will be a life saver but long term notes on adjustable rate mortgages will kill you once interest rates start climbing. Arm’s haven’t been a bad thing the last 10 yrs because rates have continued to drop during that time but if you over extend yourself on a purchase and use an arm then you could really get bit in the next couple yrs since rates will more than likely rise to counter inflation.
So in short if you have “cash” I would do something with it soon before inflation makes it worth less. Long term fixed debt is ok and long term adjustable rate mortgages are probably something I would avoid.

[KactusKiller]

It’s a catch 22, do you buy now while prices are still high because of low inventory, with the low interest rates or because you have cash on hand, which by the way is loosing value if you have it just sitting around because of inflation. Or do you “keep your powder dry” by hanging on to devaluing cash and wait for another major market downturn to be a buyer when people start trying to dump assets and get them cheaper at which time your dollar will be worth less and more than likely long term interest rates will be a lot higher.

It’s a gamble either way…


(I can write a run on sentence like no one else)

[Drycreek3189]

(I can write a run on sentence like no one else)

Hey, everyone needs a talent !

[Throwin Darts]

In inflationary periods, a lender gives you money today that you pay back with money that is worth less at a later date.

[CTR0022]

In inflationary periods, a lender gives you money today that you pay back with money that is worth less at a later date.

Then why are so many bank stocks doing so good?

[Playa]

Can you imagine the amount of “fire sale” real estate due to adjustable rate mortgages that will flood the market when the Fed has to really start raising interest rates as inflation balloons?

[Hogmauler]

So I have the opportunity to buy a contiguous 10 acres and the loan would be fixed; however, land is not as liquid as stocks etc correct? Worst case scenario you put 50% down, the inflation continues to worsen and your forced to unload the property at a loss because the rest of your cash is being eaten up by $8.00 a gallon milk. So your a little safer with a fixed rate mortgage.

[RiverRat1]

If the land is a decent price and a fixed rate may be good. But again, it's up to you to see the future to see if you'll be able to make the note payment. IMO if you do make it through the next 5-10 years the rest of the note will be a breeze.

[Hogmauler]

Yup. That’s the 10 million dollar question Rat. Seems like your darned if you do and darned if you don’t. You just can’t tell the future. So your losing value everywhere.

[Throwin Darts]

Then why are so many bank stocks doing so good?

Because interest rates are finally going to increase in 2022 in an effort to cool off inflationary pressures.

A bank's earnings are largely dependent on net interest margin and if loan rates are higher and cost of funds remain low then earnings should grow.

[Hogmauler]

Definitely sounds like a roll of the dice at best

[KactusKiller]

Definitely sounds like a roll of the dice at best

Yes but to me it’s the difference between having cash on hand and borrowing money. No way I would leave cash sitting idle right now. Get it into some kind of an investment. Land and real estate is a pretty good hedge against inflation. Borrowing is still ok because I believe rates are still lower than the annual increase in inflation currently.
I just don’t like extending myself with long term debt especially with adjustable rates when there is major uncertainty with the economy.