Remember a few "Sail-Kitty" Posts back when I said the fixed rate mortgage saved our sanity and our marriage? We arrive at this part of the story now.
Marriage. Isn’t it a funny little beast? Often, you put two children together who have barely a nip of life experience between them, shove them out into the “real world” and expect them to make it, together. It is among the most unlikely of social institutions to be successful, right behind Lehman Brothers.
As our economic risk and reality set in, there were so many feelings consuming us both. Frustration, of course. Fear that our big dream would never become a reality. Fear that we would not be able to hang on, and we would fail to keep our little life together. Embarrassment that we would make decisions that would lead us into this quagmire. Betrayal by the system that said the responsible thing to do is just get into a house and settle down. We worked hard, we tried to make good choices, and this is where it led us? We felt picked on by fate. Why did we buy a house in the epicenter of the financial crisis? We felt defeated, like this was too big of a loss to come back from.
But, there was one thing saving our sanity in this moment. The fixed rate, 30 year mortgage.
All around us, the adjustable rate mortgages were coming to their adjustment term. Let’s go back to that average family size 2100 square foot house: People who bought their house with an adjustable 2% interest on their $400,000 mortgage suddenly found their $666 per month mortgage adjusting from the introductory 2% to the market average of 6% or a mortgage payment of $2,000 per month. And of course this happened at the same time people were losing their jobs and their savings invested in the stock market had been cut in half. They weren’t expecting this when they bought the house because they planned to just refinance and get that 2% mortgage rate again, but when the value of the house is nil, no one is going to refinance your $400,000 mortgage. People simply could not find an extra $1,400 per month in their budget in this type of economy. They couldn't pay their new mortgage amount, and so more and more houses were falling in foreclosure. Some people chose their adjustable rate mortgages because it seemed like a good deal. Others were defrauded by mortgage companies and brokers who told them their mortgages were fixed but passed them a packed of adjustable rate contract language to sign. If the people did not read the contract terms, they missed the switch and ended up with a mortgage term different than what they wanted. It was a terrible time.
For us, the adjustable rate mortgage is one bit of bad luck that did not befall us. With our fixed rate mortgage, the payment we bought into a few years before remained the payment we would have for twenty-nine years more. And, as luck would have it, we chose a number that kept our mortgage less than 30% of our total annual income at the time we bought the house. So, as long as we kept at least one job we would be ok. I was grateful, but this did not stop me from hyperventilating every time I felt nervous about the security of my job.
Andrew and I would set out on our nightly walk. We would grab each other’s hands and walk past our former neighbor’s houses, the windows dark with their absence, "For Sale" signs posted, foreclosure notices taped to windows, now torn and drooping off in various states of disregard. All the landscape plants died without water in the Las Vegas heat. We realized something very important about ourselves: a modicum of financial stability is non-negotiable for our personalities. We do not operate at our peak performance while worrying every day that our financial plan is going to fall out beneath us. We value independence. We both become ill at the thought of having to rely on someone else. We become angry and fearful people. Angry and fearful people are no fun to be around. Put us in this condition long enough, and we know our marriage wouldn’t be able to withstand it. No body wants to hang out with an angry, resentful and fearful curmudgeon. It was in this timeframe that we realized something really important about our personality as a couple:
The Godfreys need a certain level of financial security to free our minds and our hearts to feel optimism, happiness, love.
There is no judgment value placed on this fact. We admire the people in the world who trust in themselves so deeply that they know they can make ends meet no matter the circumstances. They can edge out on a limb, jump away from their golden safety net and know that their ingenuity will catch them if they fall. That is an amazing personality trait that takes some people toward successes. They take larger risks earlier and often - and we all know the higher the risk, the higher the reward…unless you crash and burn.
Andrew and I happen to not be these people, and luckily, we seem to be calibrated similarly in this regard. We may grow over time to embrace a bit more risk, but our default requires some financial security behind us. We got lucky that our instincts guided us toward a fixed rate mortgage in 2006. We got even luckier that life helped us put our finger on this key personality trait before too much stress befell us. With this new understanding we started looking around to revise our untenable financial plan.