How does rising inflation affect your borrowing power?
Last updated on January 30th, 2023
How does rising inflation affect your borrowing power?
Inflation is a measure of the rate at which the prices of goods and services are increasing over time. When inflation is high, the purchasing power of money is reduced, because it takes more money to buy the same goods and services as before. This can have a number of implications for borrowers, including a reduced borrowing power and increased borrowing costs.
One way that rising inflation can affect your borrowing power is by reducing the value of your income and assets. For example, if you have a fixed income, such as a salary or pension, the purchasing power of that income will be reduced as prices rise. This can make it harder for you to afford your monthly mortgage payments or other debts, and can reduce your borrowing power.
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Another way that rising inflation can affect your borrowing power is by increasing the interest rates on your home loan or other debts. When inflation is high, the central bank may increase interest rates in order to control inflation and maintain stability in the economy. This can result in higher interest rates on your home loan or other debts, which can increase your monthly payments and reduce your borrowing power.
In addition to reducing your borrowing power, rising inflation can also increase your borrowing costs. For example, if you are applying for a home loan, you may be offered a higher interest rate or less favorable loan terms due to the higher inflation environment. This can result in higher monthly payments and higher overall borrowing costs.
In conclusion, rising inflation can affect your borrowing power in a number of ways, including reducing the value of your income and assets, increasing interest rates on your debts, and increasing your borrowing costs. It is important for borrowers to understand the impact of inflation on their finances, and to take steps to manage their debts and maintain their borrowing power in an inflationary environment.
Speak to a mortgage broker today about refinancing to set yourself up to pay off your home faster and avoid paying unnecessary interest.
