Economic Stimulus on Low Rate Home loans? Lets give it a try.

So, this morning on NPR, they were discussing the idea of government backed home loans set at 4%. This would put money in the pockets of homeowners and make the government a little bit of money. I suggest that it would make the government more than a little bit of money. The discussion hinged on the government being able to sell T-Bills at 3% interest and then loaning the money at 4%...therefore making 1% on the loans. Excellent idea. Puts money in the pockets of homeowners and puts money in the pocket of the government...win win.

Here is where it gets better for the government and a little less beneficial to the homeowner. Note, I say a little, because it would still equal more money in the pockets of the homeowner. The reason it makes more money for the government is due to less interest being paid by the homeowner, therefore resulting in less interest deductions on their income taxes resulting in MORE tax being owed to the government. This program would cost the government nearly nothing as it would probably be routed through Fannie or Freddie and it would make more money for the economy by putting more money in our pockets and make money for the government by the money earned from interest and higher taxes.

Now, you may say...why pay the lower rate if it will result in higher taxes. Well, for me, I currently pay about $2500 a month for my mortgage (this includes principle, interest, property taxes, & insurance). At 4%, I would pay about $2050 a month. This results in approximately $500 a month back in my pocket. Now, with that being said, I would probably end up owing an extra $200 a month in taxes due to lower interest deductions. At the end of the year, I would still have and extra $3600 dollars. And the government, just from me, would have an extra $3500.

Imagine if the millions across the country refinanced in this manner? Not only would the economy get a boost from people having more money in their pockets, the government would have BILLIONS more to pay down the national debt, build subways, finance Social Security.

Oh, and the other benefit would be that this would perhaps make peoples mortgages more affordable if they are in risk of defaulting...a much needed thing these days.