Comment on Uber Eats or something idk

• NateNate60@lemmy.world ⁨2⁩ ⁨days⁩ ago

  Your maths is not right. Inflation, in absolute terms, is a larger benefit to people with higher interest rates.

  Let’s consider the scenario where inflation is 10% for simplicity, and two borrowers who each borrow $100, but Borrower A at 5% annual simple interest and Borrower B at 25% annual simple interest. Both borrowers borrow the money at the beginning of Year 0.

  Borrower A owes $105 in Year 1 dollars at the beginning of Year 1. This is equivalent to $95.45 in Year 0 dollars.

  Borrower B owes $125 in Year 1 dollars at the beginning of Year 1. This is equivalent to $113.64 in Year 0 dollars.

  Compared to a 0% inflation rate, Borrower A saved 9.55 Year 0 dollars and Borrower B saved 11.36 Year 0 dollars. Borrower B saved 1.81 more Year 0 dollars than Borrower B due to inflation (but paid 17.55 Year 0 dollars more overall because of interest).

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  • Trainguyrom@reddthat.com ⁨2⁩ ⁨days⁩ ago

    Actually its the inverse. Borrower A is borrowing the equivalent of $105 and borrower B is borrowing the equivalent of $125 and after 5 years the amount they borrowed is equivalent to $160.

    Let’s put this into more real terms. Lets say 30 years ago borrower C got a $100k mortgage at a 6% interest rate. Ignoring everything else that often gets lumped into “the house payment” (insurance, property taxes, HOA/condo association fees, closing fees, etc.) their monthly mortgage payment would be $599.55 for the entire lifetime of that mortgage. That $100k in 1995 dollars that was borrowed would be about $210k when adjusted for inflation. Those 360 payments would also conveniently equal out to roughly $215k meaning they effectively were loaned the money for free over the timescale, and that loan payment of $600 in 1995 is still a loan payment of $600 in 2025 despite the fact that that $600 in 1995 dollars is equivalent to about $1200 today.

    Basically with inflation, property ownership ensures a roughly decreasing cost of living over a lifetime and property has a tendency to gain value faster than a dollar does, so ultimately being able to get a mortgage creates wealth for the individual by stabilizing costs that would otherwise grow indefinitely and they gain an asset that generally increases in value.

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    • NateNate60@lemmy.world ⁨1⁩ ⁨day⁩ ago

      I’m a bit confused by what you’re trying to say here. It seems non sequitur if you are trying to say “borrowers of higher interest rate benefit less from inflation”.

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      • Trainguyrom@reddthat.com ⁨1⁩ ⁨day⁩ ago

        I wasn’t the one who said that part. I just wanted to correct the simplified math with some real world numbers that put into perspective how much wealth just being able to get a mortgage sets one up for

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  • UnderpantsWeevil@lemmy.world ⁨2⁩ ⁨days⁩ ago

    Inflation, in absolute terms, is a larger benefit to people with higher interest rates.

    Fair enough. I’m more thinking in a discrete sense… “saving money” versus “owing money”… rather than implicitly how much less are you paying.

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• bier@feddit.nl ⁨2⁩ ⁨days⁩ ago

  I mean it more like if you would have borred 100K for a house in the 70s that was a lot of money, if you still live in that house you probably paid it back, but even if you didn’t 100K today isn’t that much money anymore

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  • UnderpantsWeevil@lemmy.world ⁨2⁩ ⁨days⁩ ago

    That’s a historically unusual artifact of the financialized housing market in a country where the population outpaces new available housing units.

    Go to Italy or - God forbid - Iraq or Ukraine or Myanmar, and you’ll find record inflation combined with falling real estate values. Buying a home in Lebanon or El Salvador or Bulgaria in 1975 wasn’t a good move. You had to be a certain proximity from the US/EU money printing machines and a distance from the US/Russia bomb dropping machines to get that arbitrage to work.

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