THE VARIABLE rate mortgage is one of those things that's neither good nor bad, but only inevitable. Without it there would shortly be very few mortgages available to anyone. After all, in the light of recent experience, how much money would you be willing to bet that inflation won't go higher over the next 20 years? If you don't like the idea of a mortgage interest rate that varies every few months with all the other interest rates, don't blame the Federal Home Loan Bank Board that approved it. Blame the inflation that raises interest rates.
Throughout 15 years of increasingly rapid inflation, the fixed-rate mortgage has been the great protector of middle-aged, middle-income Americans. As inflation carried up their other costs -- and, not incidentally, their incomes -- the mortgages kept ticking away at their accustomed rates. In the 1960s it was 5 and 6 percent. In the early 1970s it was 7 and 8 percent. Currently new mortgages are running around 13 and 14 percent.
But with inflation at 10-plus percent, the homeowner with a 6 percent mortgage is being heavily subsidized. By whom? Partly by the small savers who keep their money in conventional bank or savings and loan association accounts, where it draws interest way below the inflation rate. Partly by new borrowers, who are charged high interest by institutions struggling to stay solvent under their burdens of old, low-yield loans. Partly by the institutions themselves, earning little or no profit. As inflation continues and the nature of these subsidies becomes clearer to everyone, more people naturally want to borrow -- and fewer, equally naturally, want to save and lend.
The shift to the variable rate mortgage will have an obvious political significance. To the generation of home buyers who adopt it, it will mean that the effects of a rising inflation rate are much more painful. But there's another side to it. In a time of declining inflation, the variable rate protects the buyer.
People who sign 14 percent mortgages with fixed rates are assuming that the inflation will keep rolling merrily along, lifting their salaries and the value of their houses to make it all bearable. If the inflation rate should drop, the real burden of those mortgages would increase excruciatingly. There is a certain danger that those buyers are becoming a silent constituency for continued inflation, along with those businesses that, on a larger scale, are doing that same kind of borrowing. But for home buyers and borrowers with variable rates, the burden of interest declines in step with the inflation. The variable rate will make it easier for a government to stick with a rigorous anti-inflation policy.