I keep reading about all the people that are one step from doomsday. Most of these people are dealing with adjustable rate mortgage increases. Why did they get an adjustable rate mortgage in the last couple years? From a purely financial perspective, it seemed like a riskier approach because interest rates were some of the lowest in 40 years. I can appreciate that the low house payments were tempting, but I guess I’m just too risk averse.
At first I heard mostly about people with 1st mortgages that were adjusting up as the fed increased interest rates. Now I seem to be reading more about people with adjustable rate home equity loans. To me, that just seems tragic. For the people that took large sums of equity out of their homes to purchase things, or increase their standard of living, it just doesn’t seem too rational. They may have put their homes at risk because they didn’t have the self control to live within their means. Now, obviously there are exceptions to this. I’m sure there are people that had to take out some home equity to cover emergencies, health costs etc. Certainly they did what they had to do.
What I find intriguing about these adjustable rate equity lines and mortgages is that I find it hard to believe that the mortgage companies didn’t know that they were setting these people up for a big fall. I read an article in the paper today that said mortgage companies were trying to give more advanced notice to their customers when they were raising their rates. Well, that’s nice. “Okay Mr. Customer. Hold on. We are going to hit you with a doozie in 4 weeks. No need to thank us for the warning. We do it because we love you. Oh, yeah, by the way, your rate is going up by 2% and you are probably going to lose your house. Have a nice day.”
The lesson that I’ve learned is that I’m always going to plan for the long game. I know that many people have used the rationale that they don’t plan on being in a house for more than 5 years so they get the lower adjustable rate mortgage for a lower payment and to pay less interest. It’s a valid point of view. If I had gotten an adjustable rate mortgage on my first house, I would have saved myself a few thousand dollars over the nearly 5 years we lived there. Looking back, I don’t think I’d change anything though because I never knew for sure what the future held for me. A million things could have happened that would have forced me to stay in that house. Luckily they didn’t. Now, we are in a house that we hope to live in for quite some time. I’ve got a 30 year fixed interest rate and am grateful for a stable payment (with the exception of my property taxes raising my payment each year)