As the current mortgage meltdown and economic crisis has taught us, how you’re paying for you home is as important as having a home. This will be very important going forward, as inflation is an surety after the huge spending of the U.S. government, and we need to keep this in mind with the financial decisions we make.

Inflation is already here, as you can tell from food and fuel prices, but what hides the actual figures are things like light trucks for example, which are included in the inflation numbers, but very few people are buying at this time. That means the price of a light truck, or another product which most people wouldn’t be buying at this time, could drop in price in a big way, but because it has no impact on most people, makes the inflation numbers look tame, but in reality the everyday cost of items we actually use are going up.

There is no doubt interest rates will eventually rise, and that will also put inflationary pressure on the products and services we all use.

So how does this apply to how you own your home? Simple: own it with a long-term fixed-rate mortgage. The reason this is so wise is as inflation rises and the government continues to print money to pay for its trillions in debt, the value of the U.S. dollar will continue to fall.

What that means is the money you pay off your mortgage with will be worth less in the future, and so cheaper from your standpoint to use for that purpose. In other words, you have a built-in inflation hedge when you pay for your home in this responsible and conservative manner.

To help you understand this a little better, think of the fact that no matter what the U.S. dollar is worth, you’re going to be paying the same amount of monthly payment for your mortgage over the 30 years you took out your loan. So as the U.S. dollar plunges in value, you continue to pay the same amount of dollars, even if they aren’t worth near the amount they were when you took on the mortgage. That’s a hedge against inflation, and a very strong and real one.

Don’t misunderstand, ignore or be caught off guard by inflation. It’s coming, and we need to protect our buying power through taking a number of steps to keep ahead of the inflationary pressures. Buying a home and mortgaging it with a 30-year fixed rate is one of the better steps to take to ensure this happens.

Tags: financial management, Inflation Hedge

This entry was posted on Friday, December 11th, 2009 at 7:00 am and is filed under tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

• Weakonomics Links: Where Your Taxes Go Edition In my recent survey, I solicited feedback from you readers about including links on Fridays.  I'm not going to start doing it every Friday, but I'll do it every once in a while.  Maybe I'll collect good links over the...
• Missed Fortune 101 -- Horrible Advice! I heard about Douglas Andrew's Missed Fortune 101 when somebody recommended it for the "Best Financial Book I've Ever Read" series on FreeMoneyFinance. (FMF is merely the messenger, so don't shoot him! :)) It immediately drew criticism from other readers....
• You know what happens when you assume ... More talk on the good-debt-bad-debt question: Good debt versus bad debt A few people have labeled me risk-averse when it comes to debt, and that's all right.  I'm still of the opinion that it's a really good idea to pay...
• Investing in Your Life Pays Off in the Long Term This post is from staff writer Sierra Black. Sierra writes about frugality, sustainable living, and getting her kids to eat kale at Childwild.com. Simple living is great. Avoiding shopping malls in favor of clothing swaps, cooking meals at home with...
• How to Qualify to Buy Your First Home in Today's Market The mortgage arena has changes a lot in the last two years, but there are tips that will help you achieve the American Dream of homeownership. Learn the terms for both mortgages and real estate Understand the cost involved in...