Why using adjustable financing is bad for your health

Your variable rate mortgage

is someone else's future real estate bargain

Using variable rate mortgage money is a recipe for disaster. It is a way to make banks rich and put a stick of dynamite in your investment portfolio.

The Federal Reserve Board has figured out as long as we are printing money at the rate of a billion bucks a day in Iraq, raising interest rates on the money the government is borrowing is risky business. At the same time the US buck is worth less, heading towards being worthless. The ultimate solution is to raise rates which increases the value of the dollar.

"The banks know it is a matter of time before interest rates increase"

The banks know it is a matter of time before rates increase. They are happy for borrowers to take the risk on long term rates. So long as the economy is slow the banks get their pretty penny. When the economy picks up they will make out like bandits on the higher rates, or they will take your pretty house.

Banks make money on the backs of those who bear the interest rate risk for them. If your adjustable interest rate doubles and your payment follows, the bank will be happy to take your house if you can't pay. Investing in real estate during a rising market is a sure way to get rich. The cheapest way to buy houses is lend money on them and then foreclose. Meanwhile, the guy who agreed to the adjustable rate will feel pretty bad when his friends talk about an improving economy. They boast about the new car they bought while Mr. adjustable loses his house.

The long and short of it is, don't agree to these low rate notes even though the bank offers incentives to do so. If you must go along with these kinds of schemes, do so only when you have lots of equity in your property. It is a lot easier to refinance a property with a 50% loan to value than one over-mortgaged and in foreclosure.

In the old days there was relationship banking. Large banks like Wells Fargo wanted your business and they would do what it took to help you with an adjustable rate note gone wild. Not so today. Banks will do anything to make a buck. Decision making is by someone on the other side of the cell phone tower. They don't know you, don't care, and your personal banker has no power.

"There are exceptions to every rule"

There are exceptions to every rule. If you are sure you have one of those exceptions feel free to email me. I will give you my point of view. Otherwise, if you do the deal don't bitch when someone else gets a great deal on your investment property.

Tim Paynter usautosdirectllc@gmail.com