Do you remember your high school athletic trainer? I remember mine. His name was Mr. Friend. No, seriously it was. He was a really good guy, a friend, if you will. Due to liability reasons, he couldn’t really do a whole lot beyond wrap your injury, put you on the “stim machine”, or tell you to ice it. Mr. Ice It is what we used to call him. Sprained ankle? Ice it. Pulled hamstring? Ice it. Frostbite? Ice it.

 

Did the ice actually help anything? I think so, but there were naturally some conditions that ice couldn’t help. Well, ice is on its way to save the day for America, and it’s coming in the form of lower interest rates. But, does America have a problem that can be solved by lower interest rates? Ehhhhh, not exactly.

 

Look, we all have our financial challenges, and better monthly cash flow could help anybody. Therefore, lower interest rates will help people that have great credit, plenty of equity in their home, and a good debt to income ratio. But, the people that I have just described aren’t in the danger of foreclosure, generally speaking. The people that are the most in trouble, are the people with no equity (or negative equity) in their home, and can’t do jack squat about it. 

 

Here is what I mean. Let’s take our old friend, Jack Squat. Jack bought his house last year for $200,000. He put (a reasonable) 10% down on the house. Therefore, as of the day he bought it he had $20,000 of equity in his home or 20%. The bank owned the other 80%. This is based on the fact that he owes $180,000 and the home was worth $200,000. Did you catch that? I said was. The home was worth $200,000. Due to the economic downturn, Jack Squat’s home value has fallen 9% to $182,000. He now has $2,000 of equity in his home or 1%. The bank now owns 99% of his home’s value because he still owes them approximately $180,000. This is where refinancing becomes virtually impossible. Many lending institutions are not redoing loans like these unless Jack were willing to put more money towards the loan, which he can’t. 

 

This scenario gets much stickier when you consider that many people have been putting much less than 10% down on their homes. Often times, people were putting 0% down. Zero point zero.

 

So, will lower interest rates help the people that are really in trouble? Nope. But it will help some people by putting them in a better cash flow position.

 

Be sure to watch Pete the Planner (sorry about the third person) on Fox News Studio B with Shepard Smith at 3PM EST today (12/5)

About Green Candyâ„¢

Green Candy™ (www.GreenCandy.com) is an online financial assessment tool that helps Gen Y-ers and Millennials get on the right financial track before the “debt hits the fan.”  Introduced by radio personality, comedian and financial expert Pete the Planner (www.PeteThePlanner.com), Green Candy’s ™ various “pods” allow users to assess their financial health and competency in common areas such as Debt, Budgeting, Investing, Charity, Risk Management and Major Purchases, as well as in areas unique to Gen Y. A subsequent series of targeted worksheets, podcasts, tip sheets, and action plans guides them to the financial promise land.  Green Candy™: Get in control before the debt hits the fan.   

About Pete the Planner

Pete the Planner (www.PeteThePlanner.com) is expert financial planner Peter Dunn’s super-saving alter ego.  Peter is an award-winning comedian and rising star in the financial world. Named one of “Indy’s Best and Brightest” in finance in 2007 by KPMG, Peter was also declared one of NUVO magazine’s “30 under 30 to Watch in the Arts” for comedy.  Peter is the author of What Your Dad Never Taught You About Budgeting (2006) and is the host of the popular radio show Skills Your Dad Never Taught You on News Talk 1430 (WXNT). He blogs regularly at www.petetheplanner.com/blog.