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Yep. In the olden days, we used to describe this effect as "front-end loading". As in "the higher nominal interest rates in a high inflation environment cause mortgage payments to be front-end loaded".

The simple rules of thumb that people use to decide whether they can afford a mortgage (less than x% of income) can't handle changes in inflation properly. The rules of thumb that work under one inflation environment don't work under a different environment. Sort of Lucas Critique.

We'll assume that there's no real wage growth, so wages increase with inflation.

What has happened in Canada over the past 30 or 40 years is that families have been able to increase their income by having more earners - Nicole Fortin has an interesting paper arguing that female labour force participation is driven, in part, by the need to pay the mortgage.

But now that the majority of women in the home-buying age bracket are in paid employment, there isn't a lot of room for further growth along these lines.

This is why older homeowners talk about the payments "getting easier". Look at the the 10-year anniversary: payments are almost down to half their initial level in the high-inflation case (versus four fifths in the current example) . Now, to be fair, it is real rates that have fallen a lot in the last 20 years since inflation has been stable, close to 2%. Focusing on the real mortgage rate allows us to see just how exceptional this environment is and the multiple ways it can go wrong for homeowners (credit component of nominal rate grows OR inflation shrinks).

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