Homeowner mulls switch from fixed-rate loan

Comments 0

By Dave Ramsey

Published: October 16, 2008

DEAR DAVE: I bought my home about a year ago with a 6.5 percent fixed-rate loan. But I’ve been noticing that adjustable-rate mortgage loans are cheaper now and could cap at 10 percent. Do you think I should switch?

Patricia

DEAR PATRICIA: Are you kidding me? Sure, they’re a bit cheaper today, but where do you think they’re going to go in the future?

Adjustable-rate mortgages are an awful product. They’re particularly awful when we’re sitting at the bottom of the interest rate environment, and they’re not going to go anywhere but up.

I’ve been begging people for more than a decade not to use these loans or to get rid of them if they’ve already got one. You have a wonderful mortgage, Patricia. The stability and predictability of it is a great thing.

Stay with what you have.

DEAR DAVE: I had a motorcycle wreck seven months ago, lost my job as a result and have been drawing unemployment for the past five months. I was making $1,200 a month in retail management before this happened, but I’m getting just as much with unemployment even though I can work again. I’m married and have a small daughter, and my wife doesn’t work now. Do you think I should just milk unemployment for as long as I can so I can stay home and help with our daughter?

Tim

DEAR TIM: No, you shouldn’t keep milking unemployment. You need to get a job.

You could make more than you were at your job or on unemployment if you were delivering pizzas full-time. I know you probably wouldn’t have benefits running pizza, but how about the benefit of working for a living and making some money?

You need to get up off your tail and find something to do — maybe even two or three things to do — until you find a good-paying thing to do. And I don’t think I’d go back into the kind of management you were in before, because even working that gig, you guys were living at the poverty level.

You’ve got a career crisis on your hands. It’s sweet that you’re there with your baby, but it’s seriously time for you to get a good job. Take classes and further your education or get into another line of work. But you’ve got some serious responsibilities here, dude.

Fix this thing now!

DEAR DAVE: Is it possible for a government to run without debt? If so, do you know any examples of a state or federal government that is run debt-free?

Kyle

DEAR KYLE: Sure, it’s possible. Our federal government was debt-free for many years, so it’s absolutely possible for a government to be debt-free and run on a balanced budget.

I live in Tennessee, and we have a mandatory balanced budget law. All you have to do is balance the budget, and you can avoid debt. It doesn’t matter if you’re an individual or the government. You should live on less than you make.

You shouldn’t get involved in things you can’t pay for straight up, Kyle. And that goes for the government, too!

E-mail questions for Dave Ramsey to davesays@daveramsey.com. For more financial advice, go online to www.davesays.org or call (888) 227-3223.

Related Topics: Business, Personal Finance, Home Financing, Consumer Credit and Debt