Has the entire country gone insane?
Now I'm starting to get a little scared. More than a little scared, actually. First we have this little tidbit about Alan Greenspan recommending that consumers replace their fixed rate mortages with variable rate ones.
Then I look around and discover that quite a few people have been getting variable rate mortgages.
This is really scary. A lot of people have been concerned about a bursting housing bubble happening once interest rates start to rise. Even if that happens it wouldn't necessarily be such a big deal. But, if a large chunk of our population got suckered into getting variable rate mortgages so they could go from buying a house the couldn't afford to buying a house they REALLY REALLY couldn't afford, the impact of an interest rate rise could be, uh, bad.
Here's the deal. Interest rates go up. Your housing price falls. Your mortgage payment goes up substantially. You can no longer afford to make your mortgage payment. And, since the market value of your house is now less than the value of your outstanding loan, you can't just sell and trade down. Default. Foreclosure. Cardboard box.
As long as most consumers have fixed rate loans, the consequences of increased interest rates and a sudden housing price downturn wouldn't necessarily be so great. But, if people are drinking Greenspan's kool-aid...
