Why does my plan's mortgage/liability payment look like it is going down over time?

Fixed liability payments in nominal and real dollars

Mortgages and other liabilities that have fixed payments will be level-looking into the future only when viewed in nominal (future dollar) terms. When viewed this way, we are showing that the liability payment itself - the amount of the check someone would write to pay the bill or the amount that is automatically debited every month - will be the same number whether it is paid today or 10 years from now.

For example, a fixed-rate amortizing mortgage with a $1500/month principal and interest payment that ends in 2040 will have a $1500 payment due in June 2024 and in June 2034. For example, below we see the sum of all mortgage payments in each year is $18,000 ($1500 x 12).

Mortgage Payment in Nominal (Future) Dollars

However, when viewed in today's dollars ("real" dollars), the 2024 amount is higher than the 2034 amount. That's because, when viewed in 2024 dollars, $1500 spent in 2034 doesn't have as much purchasing power as it would have had in 2024. Due to 10 years' of inflation between 2024 and 2034, the 2034 payment is lower when viewed in 2024 dollars.

Mortgage Payment in Real (Today's) Dollars

Which view (nominal or real) is easiest to understand?

Because of this inflation effect, it can often be less confusing to show clients a plan in nominal (future) dollars. That's because the only thing that really exists in anyone's wallet or bank account is nominal dollars. (There's no such thing as a "forever dollar", like a "forever stamp".)

The "real" view of this expense is only really helpful if you want to show clients how liabilities are actually more valuable in inflationary periods, because the fixed payment actually gets less expensive as time goes on. While this is an interesting concept to discuss and demonstrate, it is unlikely to be the core of a conversation. So, the nominal view is usually less confusing and more helpful when presenting a plan to clients.

Changing between real and nominal views

To ensure that you are viewing a chart or table in nominal (future dollar) terms, click on the tools menu in the upper right of the screen and choose Nominal.

You will also see a note across the top (or, in Life Hub, across the bottom) of the screen noting that values are shown in "future dollars" (nominal) or "today's dollars" (real).