Dear Dave,
Considering all the market volatility, why do banks offer adjustable rate mortgages? How did they come into being?
Anonymous
Dear Anonymous,
I was in the real estate business in 1978, and that was the year fixed rate mortgages went to 10 percent for the first time in history. It created all kinds of chaos, but that wasn’t the worst of it all. By 1981, rates were as high as 17 percent. Banks were paying 10 to 12 percent on savings accounts, but they were making just five percent back from their products. Essentially, banks began looking for a way to prevent themselves from losing money in the future. Out of that, the adjustable rate mortgage was born.
With the adjustable rate mortgage (or ARM), banks offer a lower interest rate in the beginning to grab your attention. Then, when rates adjust they adjust up. It transfers risk to the consumer, and puts the homebuyer in a position where they’re at the mercy of the markets when it comes to the amount of their mortgage payments.
Adjustable rate mortgages are a bad, bad deal. If you currently have one I’d encourage you to refinance now.
Dave
Car rental runaround
Dear Dave,
My husband and I had to rent a car on a recent trip to Florida. When we tried to pay with our debit card, the attendant told us he would have to pull our credit report if we used debit instead of credit.
He said all rental car companies operate that way, because there was concern about people stealing the cars and closing their checking accounts. Is this true? We’re trying to take control of our money using your plan, and we don’t want to get a credit card if we don’t have to.
Michelle
Dear Michelle,
No, it’s not true that all rental car companies operate that way. I have a debit card I use to rent cars everywhere I go, and I’ve never experienced anything like that.
There still may be a few of the smaller rental car companies that don’t take debit cards, but him telling you credit cards are the only way anyone rents a car without a big credit check hassle is a bunch of crap.
When you’re setting up your reservation in the future, verify in advance that you’re dealing with a company that accepts debit cards and that there are no ridiculous strings attached. Then, if you don’t like the terms and conditions, go to another rental company.
But don’t take a chance on wrecking your total money makeover by running out to get a credit card for something silly. It’s just not worth the risk.
Dave
• Dave Ramsey is America’s trusted voice on money and business, and CEO of Ramsey Solutions. He has authored seven best-selling books. The Dave Ramsey Show is heard by more than 11 million listeners each week on more than 550 radio stations and digital outlets. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.