Mortgage Payment Inflation

I had an interesting idea this morning when I was reading a Bogleheads post on paying extra on your mortgage. Basically, assuming you are doing a traditional fixed mortgage, your mortgage payments are going to remain pretty much the same throughout the term of your mortgage. However, inflation will take it's toll on the value of your dollar so the real cost of your payment each month will be decreasing. To compensate for that, why not increase your mortgage payment to keep pace with inflation?

For example, if your mortgage payment is $1000 in today's dollars, then 10 years from now you should be paying the equivalent of today's $1000, which at 3% a year is $1,343.92. All of your other expenses will be increasing at that rate, so why not force yourself to pay off your mortgage faster. If your relative level of income has remained the same, you won't notice the difference. Of course, if your situation has changed then the reduced relative cost of the mortgage payment is a great advantage and can help you get by.

Fed Cuts Rate, Inflation on the Rise

From the Atlanta Journal today,

"The Federal Reserve trimmed short-term interest rates by a quarter of a percentage point Wednesday, the seventh cut in seven months.

But the central bank also signaled that it likely would pause its rate-cutting campaign, which so far has pushed down the federal funds rate to 2 percent from 5.25 percent."

I have been pretty displeased while watching the interest in my savings account decrease each month despite adding additional funds regularly. On the other hand, I plan on buying a house towards the end of this year, and will want interest rates to be as low as possible. When it comes down to it, I think the lower interest rate on the house will benefit me more than a higher interest rate on my savings. I do think the rate has gone low enough though. I am afraid that inflation is going to begin to take its toll.