Suppose that you are buying your first home. Current interest rates on a 30-year fixed-rate mortgage are 5%. Lenders expect an inflation rate of 2% over the next 30 years, thus giving them an expected real return of 3%. If actual inflation over the next 30 years is 4% because of a continued rapid expansion of the money supply, would you be better off or worse off by taking out a 30-year fixed-rate mortgage?

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The Answer of Suppose that you are buying your first home. Current interest rates on a 30-year fixed-rate mortgage are 5%. Lenders expect an inflation rate of 2% over the next 30 years, thus giving them an expected real return of 3%. If actual inflation over the next 30 years is 4% because of a continued rapid expansion of the money supply, would you be better off or worse off by taking out a 30-year fixed-rate mortgage?

Suppose That You Are Buying Your First Home