Mortgage Bailout, Fair or Unfair?

Mortgage Bailout, Fair or Unfair?
(fixed rate mortgage versus variable rate mortgage)

On December 6th, a new plan was unveiled to help a small percentage of homeowners who purchased their homes with a variable interest rate mortgage. This plan, in theory will help minimize the negative impact of the down housing market and the struggling U.S. economy. It will basically lock in the variable interest rates for a five year period. Is this plan fair to those of us who were intelligent enough to purchase our homes with higher fixed rate mortgage?

No! Absolutely not! I’m not saying that something wasn’t necessary to avoid negative repercussions. Our economy is on the edge of a recession and tens of thousands of Americans falling behind on their mortgage payments facing the possibility of foreclosure. With a record high number of foreclosures consumer spending will probably also decline forcing major negative economical effects. Something has to be done to reverse the effects, but is it fair to let these homeowners off the hook?

Sure this is going to save these homeowners thousands of dollars and give them a second chance at home ownership, but the money has to come from somewhere! It’s the same money so if you are going to give it to someone you have to take it from somebody else. So who loses the money? The biggest losers will be investors in mortgages and mortgage-backed securities, banks, and the stealing goes even further.  Anyone who has any type of investment in these stocks are likely to feel the pinch. Many pension plans have millions of dollars invested in these securities such as teachers, firemen, police as well as tens of thousands of individual investors.

Will the government also take it upon themselves to lower credit card interest rates for those people who overspent on their credit cards? According to the American Bankers’ Association the average family carries $8,000 in credit card debt. Some credit card interest rates can top 24%.  Think of the money it would free up for those families it the government stepped in and lowered credit card interest rates to a nice fixed 5%. Would this be fair?

Some home-buyers claim they were tricked into the interest rates or did not understand what they were doing. One person was quoted as saying “It is not just people being irresponsible affected. Who knew the market was going to crash and our homes were going to be worth less than when we bought them, even after we fixed them up? Who knew taxes would double a year after buying one’s home? Come on, nobody expected this. 2 yrs ago we thought we would be able to sell right now. ” My response to this would be THAT’S WHY YOU GET A FIXED RATE! I had the same option when I purchased my home, but I was afraid of the unknown so I took a FIXED RATE option when I purchased my home. Why should I be penalized for making the good decision?

The truth of the matter is that you should learn the basic principles of budgeting. If you are going to have to depend on an interest rate that is lower and variable then you probably can’t really afford the home. If you can’t afford to purchase the house with a fixed interest rate don’t buy the home. They call it a variable interest rate because it can change (increase or decrease). You should include extra money in your budget to account for the periods when the interest rates are up. Don’t max yourself out by buying cars and homes you can’t really afford!