10.03.2008

Why lowering everyone's mortgage to 5.25% a terrible proposal

The proposal to lower all mortgages to 30 year fixed mortgage at 5.25% ticks me off to no end. And if you make responsible decisions, waited for an affordable rate when buying your home, researched and refinanced at a rate close to this, are saving money for a down payment on your first home, or you paid points to get a rate at 5.25% it should tick you off too.

If you waited and bought or refinanced when rates actually hit 5.25%, then this proposal says your patience or the higher cost you paid for the home (home costs often go up as rates go down since the amount a buyer can pay is what it is), or points you paid or the effort you put into managing your mortgage was a complete waste.

And if you were responsible and could not afford a home, you are screwed because everyone will have a rate lower than you're ever likely to ever see meaning the value of homes won't be set by what the market (you) can afford but will be higher than that.

Alternatively, this article suggests that only those delinquent in their payments might get the new rate so perhaps now is the time to buy a new home at the highest rate, but cheapest closing costs you can find, and then don't make a single payment.

Why not make a fair proposal? If the goal is to lower mortgage rates so that fewer people default, why not lower everyone's rates the same amount, regardless of whether they have not fulfilled their contract or whether they were responsible, ripped off or just greedy.

If the average interest rate is say 7.25% then why not lower all rates by 2%. That way, people who got conned or were totally irresponsible with their money get assistance, but people who are on top of their business or paid points for their loan are not punished by essentially wiping out the advantage they earned through their patience, willingness to pay more up front, hard work, or responsible decision making. And responsible savers, who want to but a home, have a chance as the market will still turn over as those who really just can't afford what they took on, move on, and the market continues to adjust to what is reasonable.

Thoughts?

2 comments:

Matt said...

Hey! Anyone that pays points is a fool. I say 5.25 % is a great way to get all resposible homeowners on an even playing field.

Wyliemoney said...

Putting everyone's rate at 5.25% puts irresponsible borrowers on an even field with responsible borrowers.

I agree that paying points does not make sense to me.