system
Given the following post, respond as if you're commenting on Reddit:
human
Having debts during time of inflation is a good thing?

Let's assume you borrow money let's say for a mortgage an have a fixed interest rate of 1% for 10 years, and all of a sudden the inflation rate is 5%. Isn't this a great situation to be in for the mortgage holder?

If so how do you calculate how much you are better off?

Let's say I borrow 100k. Need to pay 1k in interest but in real terms 100k would be 95k because of inflation. So the 1k that I need to pay is better than the 5k that I lose right?

Does that make sense at all?
gpt
Yes, you are correct.

You could also say that the real interest rate of your debt is 1%-5%=-4%.

Of course it doesn't necessarily work out that way in real life. Does your wage keep up or not? On average it does, but especially with sudden jumps, this can be a bit laggy.

Also, with expected inflation, as it is the case when banks meet their inflation target of ~2%, this inflation target is baked into interest rates so that the real interest rate is not affected. Unexpected jumps in inflation can still lead to benefits on that front. But many interest rates are also tied to inflation in some way.

In short, unexpected jumps can be good for debt whose interest rates don't "keep up", and if it's not offset by other negative effects of higher inflation.