Interest is the relative price of present vs. future assets.
The higher the interest rates, the more future assets cost in
terms of present assets.
When you take out a loan you are buying present assets by
paying future assets, and the lower the interest rate the
better for you. Once you have
Robin,
Note that you can't be better off "refinancing" since your payments
continue to be $7000 a year - thus consumption never rises and your
puzzle must involve an illusion! So where is it? Run your example in
reverse. You borrow $70,000 at 10% paying $7000 per year forever. The
