Sept 1, 2007
Recently, I was visiting a friend's home. He had the TV tuned to Sunday football.
An ad caught my attention. (I don't care about pro football, but I care about ads. I am a connoisseur of ads.) It was a bank's ad to re-finance your home. It had a note at the bottom of the screen directing viewers to channel 115. I clicked to it.
There, I saw a two-minute ad on why people should re- finance now. Send your child to college. Pay off old bills. Then the ad played again. Over and over, it replays. Here is an entire channel to run one ad. (Maybe other companies use it at different times. This strategy is new to me.)
This much I know: the ad is working. The bank would not pay for a channel if the ad weren't working.
I shuddered.
We Americans enjoy a great advantage as home buyers. We can get fixed-rate, 30-year mortgages. The rest of the world can't. Home buyers must accept mortgages that re-set the interest rate every few years: adjustable rate mortgages. All buyers are ARM-dependent.
One if the saddest things I see today is the use of mortgage equity as an ATM. The hapless borrowers do not understand that when they borrow against their home's equity, the new debt is not fixed-rate. It is good, old- fashioned ARM debt.
Think: "ATM = ARM."
You pay a higher rate for a 30-year mortgage, but you can make long-term plans based on what you owe on the mortgage. This is not true of ARM's.
If you have borrowed against your home's equity, do what you can, while you can, to get this debt paid off. If rates climb, either because of a credit crisis or future inflation, which raises interest rates in the mid-term to long run, you could lose your home. This would be a disaster.
A floating rate could sink you.
© 2022 GaryNorth.com, Inc., 2005-2021 All Rights Reserved. Reproduction without permission prohibited.