Busting Interest Rate Lies – Episode 668

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. We’re going to be talking about the April topic right here, the book topic, busting the interest rate lies. What’s actually pertinent about this right now, I had a conversation with a friend that owns an investment company. They own a lot of properties in Florida and our conversation was about the interest rates because of the conflict that’s happening and the uncertainty things are moving around. So it’s affecting everyone at all times and there’s a lot of layers to it. So start sharing some of the layers. It’ll help us absolutely. Well, to pick up on your April commentary, the books that we’re promoting that you can see in the camera, if you’re looking on YouTube and is

[00:55] probably backwards, is called busting the interest rate lies and it’s largely a discussion around mortgages and the 15 year versus 30 year mortgage conversation that so many people have when they’re purchasing a home or refinancing. Nevertheless, stepping back from that a little bit, there is something that Todd Langford has helped me with that has been so, so valuable for over 30 years and helping people with their personal finances. And that is an 8% dividing line for interest rate, especially when it is on debt. So that 8% dividing line suggests, and this is researched, that 8% or below is a pretty good loan rate. So whether it’s a car loan, a mortgage loan, you know, personal financing of some sort that you’re getting, you name it, 8% or below is a

[01:48] pretty decent rate. And so if you have somebody that’s super frustrated because, oh my gosh, I got 6.5% on my mortgage instead of six, or no, now I have to pay 7.2 and I was hoping to get under seven, it’s, well, absolutely going to make a little difference in your monthly payment. It is not substantial. It is not something to be obsessed about. It is not worth worrying about long term. Anything at 8% or below is a perfectly good rate for a loan for our major things that we’re going to finance. And so I think that just takes so much worry and stress off the table for most people. Now, Spencer, you and I are both old enough to remember when people were taking out mortgages at 18 and 20%, normal first year mortgages.

[02:40] What was the highest one you ever heard? Do you remember? If it was like 18 and a half. And I remember when I got into real estate and I remember when the interest rate dipped below 7% and all of us, our minds were like, we’re like, no way it actually went below seven. And then it kept going like this further down. You know what I mean? Yeah, yeah. It is crazy. It’s just an area of extreme volatility sometimes. And yet, I mean, we’ve spent the last, what, 20 years, not really moving around that much. So I know that there’s just tons of commentary up, down, backwards, forwards about it, you know, predictions, et cetera. And frankly, I don’t like to get caught up in all the hype. You know, if you’re a family and you’re going to go buy a home and we’re in

[03:37] an era when mortgage rates are at 11 or 12%, well, you know what? Money market rates are going to be at 9 or 10% if that’s what’s going on. Whereas right now everything’s, you know, in the somewhat lower range, but are we down in the three or 4% mortgages? No. And is it awesome if you can have one of those? Yes, but it’s all relative and it’s so important for us to remember that. And then quickly, I want to make sure that I’ve drawn a line in the sand as it relates to this 15-year versus 30-year mortgage thing, because it is imperative that people understand the concept of opportunity cost around a mortgage decision, and so many times that is not brought into the discussion and it causes people to make very wrong decisions as it relates to the true

[04:28] efficiency of their financing around mortgages and cars and other long-term things, so that line in the sand is you absolutely positively want a 30-year mortgage, you absolutely positively do not want to prepay it at all or add extra principal or do a 13-payment-per-year thing like some places recommend, those are all strategies that, quote, lessen the amount of interest that you pay, but that is just a fun fact. And if you look at this scenario with the completeness, including the opportunity cost, and you make sure that you attach time value of money to all of the decisions, which again is so easily misunderstood, you will see that in actuality a full 30-year mortgage paid just normally over

[05:21] time is the most efficient way. Now, I will readily admit that sometimes peace of mind just flat out overrides pure financial efficiency, and so great, you know, if you’re one of those people that just absolutely have to have your home paid off or what have you for your peace of mind, then fine, you can go after that, but I would encourage you to look carefully at what your objective is, like what is it that you’re trying to do, what truly drives peace of mind, and I would question that cash in the bank is more peace of mind oriented than a paid off home, but, you know, everybody can decide for themselves, and then I would also encourage you to look at the method. What, if the paid off home is truly your objective and you have

[06:04] drawn that line in the sand, what is the method that is going to make that happen the most efficiently, the fastest, with the most safety, and that is not prepaying your mortgage, it’s actually trying to build up an asset and then paying it off all at once. So there’s a lot of that commentary that’s in the book, Busting the Interest Rate Lies, it’s available on Kindle, it’s available as an audible, it’s available as a physical book, which is handy because there’s quite a few calculations and tables and charts and graphs in it, and let’s see, is there another method of the book? I have a 52 tips document of the book, if you want the summary, that’s also available on audibles, thanks to Spencer

[06:45] and the PodKick team, because that one is actually an AI done audible, and I’m always very clear when it’s AI versus Kim, but it’s AI Kim’s voice, and that’s kind of fun. You know, there’s another topic that’s related that we’ve had on the podcast before to this, to the interest rates, and it’s where people over, I’m not going to say optimize, that’s the wrong word, I’m going to call it overfiddle. That’s a good word. When they chase these offers of getting a bonus for moving money into account X and account Y and account Z, and they overcomplicate their lives, and you’ve seen it also, we’ve talked on the podcast where people all of a sudden want to overfiddle with doing the home equities or all of these other things, and what

[07:37] you’ve talked about was truth. You said, Todd’s calculator always tells the truth, and you’re looking at it. And the thing that no typical financial people do is they don’t look at the real time value of money. And then the other piece, kind of using my hammer of hitting and trying to extract as well, which is that they’re looking at this and they’re not realizing what the peace of mind is costing them. And it’s a false peace of mind. And there’s companies out there that say only use cash and we know how difficult that is. Long term, meaning difficult, like it’s going to hurt people. Well, I’m glad you brought up the home equity thing because just as we’re closing up here, it is imperative to not get caught into the first position home equity

[08:30] line sales mantra, which then actually replaces your normal 30 year fixed mortgage, a home equity line is always variable, even if it’s fixed for a period of time. And those are very dangerous. There’s nothing wrong with a home equity loan or home equity line of credit. But to take away a 30 year fixed mortgage and put in place this first position thing that I hear advertised all the time is very scary. So I really don’t want people doing that. And if somebody has questions about this space, I’m not a mortgage broker, I’m not a realtor, but I sure know how to tell the whole truth around this space. And I would love to help you get clear on it, if it’s something that you’re unsure of. Excellent. Last piece, we didn’t cover it in the

[09:15] episode. But if you’re looking for the thing that is certain that you can get access to money, to be able to use it the right way, it’s life insurance. It’s doing it the right way. It’s just that it’s one of those things that takes discipline. It takes time. It takes setting it up the right way in doing the right product. And I would say it’s a lot of work for people that aren’t willing to do it in many cases. Well, I’ve been so grateful for the connection of life insurance and real estate in our lives and in many clients lives because life insurance, especially whole life insurance, as you’ve indicated, builds that position of cash, which then creates the down payment for the next home, enables you to have an emergency

[10:06] opportunity fund for the home that you have, as well as gives you that cash position. If at some point in time, it is the best thing to truly pay off that mortgage. As a general rule, I would say leave the mortgage alone, leave the cash alone. But that’s your choice. Well, I like it. Kim, thanks for sharing your wisdom on the episode today. And for all of you listeners, the book can be found on Audible, on Amazon, or you can get the tips reports if you want to just get a taste of it before you dive all the way in. Either way, it’s at your fingertips and can help you out. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit ProsperityThinkers.com.