I don't have much sympathy for people that financed houses through variable rate loans. I had people telling me how much of a sucker I was for always sticking with long-term fixed rate loans, but now I see I wasn't such a fool.
It's a derail but I'll respond, since it's kind of defending CK, who is worthy of respect (can't believe you don't know who she is, you must be young). Also, the counterpoint for anyone who may consider following your approach.
Summary, I believe you are flat wrong. Now the detail
You lose a house if you can't service the repayments. That could happen with a fixed rate loan if for example you are relying on investment income to service the loan, and your income drops due to an economic downturn. Under such a scenario, if you had had a variable rate in a market where rates were falling, the fall on mortgage rate might have offset your drop in income, where a fixed rate drives you under.
Not intimately aware of interest rates in the US, but generally around the world they have been dropping due to the economic downturn, and the internet suggests that they are as low in the US as they have been for a decade.
Tom's original post describes CK needing to refinance to get to current market rates. Speculating on what this means, I would have read that as meaning that rates have dropped since she took out her loan and she needed to change loans to get to current market rates. Which suggests her interest rate was not moving, or varying, with the market. Which suggests it was...........?
To be fair, I don't know CK's finances but I know mine. In the late 1980s I was caught in this exact scenario. Australian interest rates dropped maybe 4-5% at the same time as house prices crashed maybe 10% (I understand the current US crashis much worse). Salary increases were not keeping up with inflation, therefore my income in real terms was dropping. A high fixed interest rate that was killing me financially, combined with falling house prices that meant I owed more than the house was worth and could not refinance. I did not lose my house in this situation, but only because I had help, but I did not come out ahead financially. I have several friends who did lose their houses at that time, who would have kept them if they had had variable rates. Hence my belief that you are wrong. I have specific experience that contradicts your advice.
Whatever mistakes she may have made, I am reading that CK tried to provide for herself, and was caught by simple bad luck...stuck needing to refinance at a time when house prices had dropped like a stone and she no longer had sufficient collateral to back a debt or sell the asset and come out cash positive.
Hope it worked out. Tom if you are still following the thread, any update?
