Stable Numbers
Mortgage Interest vs Inflation Impact
Model a repayment or interest-only mortgage, then see how inflation changes the real burden of repayments over time. Clear charts, simple assumptions, and exportable results.
Payments over time
Tip: move your cursor across the chart to inspect each year.
Outstanding balance
Yearly summary
| Year | Payment (nominal) | Payment (real) | Balance (nominal) | Balance (real) | Interest (year) | Cumulative interest (real) |
|---|---|---|---|---|---|---|
Why inflation can make a fixed mortgage feel easier
Mortgage payments are set in nominal terms. Prices rise over time, so the same cash payment usually represents a smaller share of your real income later on. The first chart shows that effect clearly. The nominal line is flat for a fixed rate. The real line falls because each payment is worth less in today’s money as inflation compounds.
Repayment vs interest-only
- Repayment: each payment covers interest and capital. The balance falls to zero by the end of the term.
- Interest-only: payments cover interest only. The balance does not reduce. You need a plan to repay the capital at the end.
Assumptions in this model
- Constant interest rate for the full term, and constant inflation for clarity.
- Inflation is applied monthly from an annual rate to show real values in today’s money.
- Overpayments reduce interest and shorten the term in the repayment case.
How to use the results
- Test a range of inflation settings. The real line changes quickly even when nominal payments do not.
- Try a small monthly overpayment. It can remove years from the term and cut total interest paid.
- If you are on interest-only, watch the second chart. The real balance falls with inflation, but the nominal balance still needs repaying.
This is an educational tool, not advice. Real mortgage rates, fees and inflation will vary. Check your lender’s terms and consider speaking to a qualified adviser if you need personal guidance.
Explore more in the finance hub.