Is a 3% Mortgage Good? – Episode 612

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. We’re gonna be talking about low interest rate mortgages and this one actually comes from one of the most popular subreddits in the world. The personal finance subreddit. Most of the time it’s an absolute dumpster fire. Sometimes there’s a good question or two and there are some more than anything really good comments. So, Kim, you ready to take away on this 3% mortgage question? Ready and curious. Okay, so the poster on here, they, it’s what do they call the original poster? I don’t know how they do it. I don’t know this stuff. It’s thinking it’s the OP or something like that. They have a 3% mortgage and their argument was,

[00:58] hey, if I refinance this today, then I’d be paying 60% more so I can’t leave. Another person says golden handcuffs and the comment that I think aligns with Kim. Are you ready for this? Yes. Okay, it says this. It said, I sold my sub 2.5 mortgage and haven’t regretted it. No need to be held hostage by good fortune or else it stops being good. I liked that. I thought that was good. Interesting. So many people are stuck. This person’s like, hey, here we go. So you know mathematically, you know behaviorally, you’ve seen it from people all over the world. These people do with 3% mortgages. They hold on, do they sell? What do you suggest? Well, a 3% mortgage is a fabulous mortgage. I mean, we’ve used for years 8% as the dividing line.

[01:58] If you can get a long-term loan at 8% or less, that is an efficient loan. And it’s interesting how that was originally stated with research, but now it’s been proven with life, right? So me and Todd and 30 plus years of helping people with their personal finances. I’m not understanding this thinking here because 3% or 2.5% held hostage. What do you mean? Fabulous rate of return. So here would be my question for the person that quote sold it. I assume that means they paid it off. It’s weird language, but maybe there’s. I think it’s sold their house. They’re like, nah, you know what? Sold the house, it could be something else, market. I mean, I have a friend that’s, you know, he’s got a couple million dollars

[02:47] and he’s seller financing at 4%. And he’s like, I don’t need it. So what do you think? If you got the house at 3%, is it worth just keeping the house or do you sell? Well, and those are all good questions. And you said it well, not only do you have to look at them economically or financially, but you have to look at them behaviorally. So here’s my question. Once the mortgage gets paid off or the house gets sold or they’re doing whatever it is that they’re doing, then what? Because while they had that mortgage, they were in the habit of putting money against that mortgage every single month. And effectively that rate of return on that money was 3% or 2.5. And you could even gross it up a little bit

[03:30] because in theory, they got a tax deduction for it. Okay, let’s not worry about that. And let’s just use 3% for ease and discussion going forward. So yeah, 3% is a okay rate. It is locked up money, right? Because when you’re paying money against a home, you’re building something called equity and you do not automatically have access to your equity. That is I think one of the biggest misnomers out there that concerns me when I hear even wealthy people say, meh, I’ve got the money, I’ve got cash sitting over here. Let’s pretend it was a half a million dollar mortgage. I have a half a million dollars and I don’t really find a good account for it that’s gonna earn much more than the 3%. So I’ll just pay off the mortgage

[04:16] so that I don’t have that 3% cost. Well, the challenge with that is that is now a dead asset and going back to the bank and accessing that thing called home equity may not be possible. Again, a wealthy person’s probably gonna not have any problem with that. Nevertheless, there are so many better places to store money, dollars, at just a little bit more than 3% to say keeping the 3% mortgage and making those monthly payments and taking the other half a million dollars of cash that you just got because of whatever is more efficient if we can put that half a million at say 4% and especially if we’re not taxed and let that money grow and be liquid. I like to use my clue acronym, CLUE. Can you control the money?

[05:11] Is it liquid? Can you utilize it for whatever you want? And can it act like the equity that you were so interested in building by paying off the mortgage of a house? Problem is when you take a home and you get more equity, let’s work the word backwards. So you have the E part of clue, CLU. You don’t necessarily have the U part of clue because you cannot utilize your equity for just anything that you want. The U have to go talk to the bank. They have to be okay with what you’re utilizing your equity for and then L, it’s not liquid because the bank could say no and you absolutely positively do not control it because the market fluctuations that could go on around that home could literally destroy that equity the very next day.

[06:03] So it cracks me up where I read articles like this, articles like oh, the best place to store your cash or oh, we looked at 10 different accounts that you could put your liquid cash in and they never, and never is a strong word, but it’s been a long time since I have ever seen whole life insurance cash value listed as one of those places to store that good, controllable liquid, utilize for anything you want, acts like equity money, your emergency opportunity money if you will. I don’t know what goes on in our world and in the press and in the various Reddit threads, et cetera, et cetera, but you just don’t see cash value of whole life insurance listed as a solution. It’s a wonderful solution.

[06:57] Yeah, no, you absolutely don’t, you’re right. And to take, there’s a couple of other points with this, you’re talking about the clue acronym of how the money is used and how it’s able to be controlled. Now, what I’ve seen and I’m going off of conversations because I have teenagers and so I’m trying to teach them things. And I think it’s a scale issue. I wanna tie it in with scale and here’s why. My middle son found a loophole, we’ll call it. So I’m not gonna disclose the location because I don’t wanna compromise his loophole, but it’s cool. So how it works is he and his buddy, they have a relationship with a place that is like a drop-off recycling center. And he gets to go in and pick up materials.

[07:53] And then he puts them on marketplace and makes money. And he could make a couple hundred bucks a day, he could make a little bit of money, it doesn’t matter. And he’s like, I could do this all the time and then I could, and it turns into some grandiose idea. Now, it comes back to scale. It works for this situation, for this timeframe. Doesn’t work long-term or in multiple places. I think that’s the same thing that we’re seeing with the other stuff here, meaning people wanna write a blog post or write up or a podcast or a video about all these financial shenanigans. And again, it’s not scale. So how have you been able to help people see the life insurance side being decades upon decades of proven and how is it that you can kind of crack

[08:45] and shed light on that, crack the surface? Well, it’s actually centuries of proven work that the life insurance industry operates in America and longer than that in other places. But I really just start with how do people learn best because nobody’s gonna consume a book if they just flat out won’t read, but they might listen to audibles or they might listen to a podcast or some people really can only learn with videos. So in our work, we’ve made an effort to have all three of those capabilities available. I really need to work better on the video space, but it’s my last chosen mode of learning. So I’m reticent to do videos and yet I have a substantial YouTube channel, but it doesn’t maybe do a good job of walking people

[09:36] through life insurance one, two, three. Nevertheless, I have found for over 30 years that people that are really committed to their finances will take the time and make the effort to do the learning that is necessary to get them long-term results. And so, first of all, my very basic book, Live Your Life Insurance is literally about an hour read. So anybody that even doesn’t necessarily love to read can get through that. And then it’s just a learning process. And then it’s an experience process also because it is very funny. People will buy the life insurance and then like a lot of things, they will literally get buyer’s remorse because the life insurance, the first year and even second year of it is the worst.

[10:26] I mean, it goes down. It looks horrible at the beginning. So you have to talk people past that, through that, if you will. And it’s just something that my team has learned how to do over time. And we can always get better at it. And in today’s world, when it’s my team that’s actually writing the life insurance and I’m just functioning as the strategist or the educator, if you will, the motivator, the inspirer to get people results. It’s such a joy to see the light bulb go on when people learn about something that they either were taught very poor or wrong information about, or they just flat out didn’t know. And so that’s a fun thing to be involved when you’re helping turn light bulbs on for people.

[11:17] Yeah, absolutely. I think one thing in our next episode is actually gonna be about this. But it’s the education piece. It’s being able to understand the foundational elements. So your next book that’s coming out is Busting the Scarcity Mindset. Correct. And that is a fundamental piece, meaning you can show the proven math to anyone. And if they don’t have the scarcity, the abundance, and those in place, it doesn’t matter. They’re not gonna have a certainty of the future. And so here as we’re talking of mortgages or we’re talking about all these things, you’re providing all of the material for any listeners that you’re trying to figure out, okay, what is the best approach? You can read, you can listen, you can watch,

[12:07] but it’s all gonna be action. It’s all taking action. I wanna add in, I think it’s really important to know your why. Understand why it’s important to you to create consistent cashflow, build that business, have an emergency opportunity fund, the why behind the decisions. And my sister Tammy Brandon has a great process to help people get clear around that if people are not clear on it themselves and they need guidance to do that inner self work. Some people don’t need the guidance, great, but be clear on your why because that will help you overcome the timeframe and the speed bumps that are gonna come along the way. I love it. All right, Kim, thank you for sharing this on our latest episode.

[13:02] Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit ProsperityThinkers.com.