A mortgage product that would automatically adjust to the market rate in a declining market while allocating the payment savings toward paying one’s debt.
Debt, stress, and mental health are inextricably woven. Is debt the new fear? I’ve been hearing and reading about how we are safer, more prosperous, and healthier than ever before. And yet, we are anxious. Very, very anxious.
Is it due to debt?
I’ve been a provider of debt for 20 years (almost). I started in the mortgage industry in the early 2000s when I moved to NYC. Too old go into finance, burned out on tech from the go-go 90s, I fell into mortgages backward. Not well planned, but so be it.
Now I spend my days involved in a debt conversation with people. I speak with all kinds of people in all sorts of situations. If someone is planning to buy a home, we talk about savings and debt. If we discuss a refinance, we talk about managing debt. Do we manage debt, though?
Some of us pay our credit cards every month. We have pride in doing so. Is not letting a balance build up managing debt? Yes, in a way, it is debt management. If such a person has no savings, are they still effectively managing debt? Or do we reposition the situation as not managing their spending instead?
Some of us carry a balance. Maybe it’s an overhang from the big yearly vacation that will be paid in a few months since we’ve increased our payments and curtailed our spending to pay it down. Maybe it was for a life event: wedding, engagement, new home, new job, relocation. There are many reasons to have some debt.
Some of us feel afraid of our debt. Some of us feel sick due to debt. It’s a worry. We don’t want to answer the phone. We feel on the verge. Our payments are not reducing our balances.
According to the Royal College of Psychiatrists, debt makes us feel “everything is out of control, and there is nothing you, or anyone else, can do about it.” We are also ashamed to talk about our debt and the subsequent mental state we experience. Two taboo subjects these days: debt and mental health.
I’m not saying that all people with debt are overwhelmed and anxious. I’m saying many are.
The American Dream is to own a home. We buy a home through the acquisition of debt. Big debt. This debt rides on top of our student loan debt we gathered while fulfilling our parent’s dream we get a college education.
Two things that go together, dreams and debt.
Owning a home is intertwined with our definition of success. If this changes, it’s going to be a slow change. Many aspects of our culture, our government, and our psyche are driving this homebuying culture in the US.
I think over the next couple of generations our homeowning cultural fabric will shred. There are tears and frays already. NIMBYism, increasing property taxes along with higher prices, are driving many to rethink buying a home. There are also lifestyle concerns. Do you want to own a home or travel? Own a home or work less? Own a home or have career flexibility? Lastly, there is some concern owning a home may not be the no-brainer investment it once was. Will properties appreciate ahead of inflation going forward? There has been a robust boom in property values for most of the post WW2 era, will it continue? Is it sustainable?
Whether it is or isn’t is a question for those more in tune than I. My question is how much is our mortgage debt along with our student debt combined with our consumer debt making us stressed?
Much like an auto savings plan, or an auto investing plan where the difference between the price of a coffee and the rounded-up dollar can sweep into a savings account or an investment account, I think it’s time to rethink debt payments similarly.
This mortgage would start at the market rate. If rates fall, instead of forcing the borrower to go through the arduous and expensive refinance process, this mortgage would be modified to down to the current market rate. The difference in payment would pay down the principal balance of the mortgage. The payoff of the homeowner’s home accelerates.
Alternatively, the homeowner could select another consumer debt to pay off with the mortgage payment savings. Perhaps she has some lingering credit card debt, or a car loan she wants to pay off — applying the savings of the mortgage payment to one or more of these would create a faster payoff.
I see this mortgage as a solution for primary residence homeowners. There seems to be some pushback from the mortgage investors I’ve pitched. While I’m guessing there are several challenges beyond profitability to this idea, it seems to be something the consumer would like. What do you think?