Real Estate Busted.

I’ve been listening to more talk radio lately and I keep catching Dave Ramsey on the air. His basic tenants for living debt free are wise and make perfect sense to me. These are things that my husband and I already practice in our finances after digging ourselves out from under an amount of debt that we decided was too much for us to carry. We’ve never had to file bankruptcy, we never let our debt get that far. It just got tight one month and we made the rent by the skin of our teeth. That was when we got aggressive and paid off every card we had, and cut them up one by one.

Our home is something we never wanted to mess with or put at risk. We have never gambled on making sure there was a roof over our heads. That always came before everything else. Risking losing your house, so that you can live beyond your means is something that has never made sense to us.

Dave Ramsey has been talking about adjustable rate mortgages quite a bit and I’ve been paying attention. In spite of all I have heard, I still have to wonder who in the world ever thought that this was a good idea? Sooner or later, interest rates are going to go up and your rate on your mortgage will go up with it? Didn’t the people who took out these loans think about that before they signed on the dotted line?

Adjustable rate mortgages were a crap shoot from the start. It was a bad idea that was sold to millions of Americans as a good idea. It’s not that they were lied to, they weren’t. An adjustable rate mortgage is what it says it is. It’s a mortgage that starts out at whatever the current interest rate is, and this rate will adjust, both up and down, over time as interests rates change with the market. There is no guarantee that the rate you got when you signed up, will be the rate that you will pay for the duration of the mortgage. Now that interest rates are going up, many Americans are finding that they should have read their mortgage more carefully, because they can no longer afford the payments on their homes. These people bought more house than they could afford, thinking that the adjustable rate mortgage would allow them to afford more than they might have been able to afford otherwise, and now they are facing foreclosure.

President Bush made a statement on the matter this week, saying that he wanted to help homeowners, and not mortgage lenders. He is absolutely right. I do believe that homeowners should be given the chance to review their paperwork and refinance to fixed rate mortgages so that they can avoid foreclosure. Good for you, Sir.

While this may save many families from losing their homes and is a noble gesture on the part of our government, I wonder if it will teach them the lesson that these families so desperately need to learn. They never should have signed up for these mortgages. It’s my understanding that many of the homes that are going into foreclosure were purchased by families that could never have afforded the payments on the home with a fixed interest rate, hence their reason for going to the adjustable rate. According to this rate calculator that I found online, families that make 40,000$ a year can only afford a house that’s worth about 120,000$ at current interest rates.

Many of the homes that are going into foreclosure right now exceed what the family can realistically afford because they thought the adjustable interest rate would allow them to get more house for their money. The sad fact is that this was never the case. The adjustable rate mortgage did not make the house cheaper. It only made the payments cheaper for a little while. Now the payments are exceeding the family’s monthly income and they can’t make the payments.

These people, even with the president’s wonderful and noble sentiments, will not be able to stay in their homes, even if they refinance because they never should have purchased those homes in the first place.

If you can’t swim, don’t dive into the deep end of the pool people.