You borrow money to buy a house in 2007 at a fixed interest rate of 6.5 percent. By 2010, the inflation rate has steadily fallen to 2.5 percent from the recent high of 4.0 percent in 2007. Considering only your mortgage, is inflation good news or bad news for you?
A) bad news, because inflation hurts everyone
B) bad news, because it makes the real value of your mortgage payments increase
C) good news, because it makes the real value of your mortgage payments decrease
D) bad news, because it makes the nominal value of your mortgage payments increase
Correct Answer:
Verified
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