There are all kinds of ways to finance a house. The most conservative is a conventional mortgage with a substantial down payment. The buyer puts up 20 percent of the total price, and the remaining value (including future interest due) is carved up into 20 or 30 years’ worth of equal monthly payments.
But there are other, riskier ways to distribute the total value of the deal over the repayment period.
A balloon mortgage differs from a conventional mortgage in two main ways: it involves little or no up-front investment, and the initial periodic payments are often less than the monthly interest. These deferred payments accumulate into a single payment—the balloon payment—that must be satisfied a few years in the future. The assumption is that the borrowers will improve their ability to pay as time goes on. By the time the balloon payment is due, they’ll have higher income, accumulated savings, or sold another asset. This kind of arrangement is commonly referred to as a back-loaded deal.
Meanwhile, the borrowers get to enjoy the full value of the house, even the part they aren’t yet paying for. In a way, they’ve used finance to import their enjoyment of the house from the future (when they really would have been able to afford it) into the present. It’s not very different from using a credit card to take a vacation they can’t afford. The bet is that they’ll find a way to pay for the imported enjoyment later.
But we know how balloon payments sometimes work out. The future arrives, and the borrowers’ ability to pay hasn’t improved. The lender forecloses, and they lose their house.
That’s where we are with our atmosphere. We’ve been making tiny, incomplete payments on our fossil-fueled lifestyle at $3.50 a gallon or $0.12 a kilowatt. We’ve enjoyed the benefits fossil fuels bring, but we haven’t paid for the full cost of their use, which includes disposing of the carbon pollution.
Nature has begun to issue her dun notices in the form of the melting ice cap, warmer temperatures, ocean acidification, and weird weather.
In hindsight, if we had been conservative, we’d have been paying all along to keep our environment from harm. For some pollutants, like sulfur dioxide, we did start to pay in the 1960s, when power plants had to install scrubbers and cars were required to have catalytic converters. These changes were resisted as uneconomic, but I can’t imagine anyone now suggesting they’re a bad idea. Not having acid rain or blinding smog is a good thing.
Now it’s time to pony up to mitigate carbon pollution on this hugely back-loaded deal we’ve struck with nature. The balloon payment for controlling sulfur dioxide was pennies compared to what it’ll be for greenhouse gases. That payment is not exclusively monetary; it involves lifestyle and economic structure. We’re going to have to leave the coal, oil, and gas in the ground at the same time we pay for the transition to renewable energy and for protection against the damage the existing airborne greenhouse gases will cause.
The alternative to the balloon payment is environmental foreclosure. If we lose a house, we can rent or crash with relatives or go on public assistance. As humiliating as that might be, we’d survive and have a reasonable hope of working our way into a new place. But when we lose the atmosphere, there’s nowhere to go.