Your 3% has a rival – What’s your life rate?

To be fair, I stole the life rate thing from Tom Ferry and JJ Mazo.

A lot of people tell me they can’t move because they’d lose their 3% rate.

I understand. That’s reasonable. That rate was a good move. So let’s look at what it’s really worth. The math is easy.

Say you owe $400,000.

Your rate is 3%. Today’s rate is about 7.5%.

The difference is 4.5%. 4.5% of $400,000 is $18,000.

That’s roughly what your low rate saves you this year. But every year you owe a little less, so it saves you a little less. In 5 years, it’s closer to $15,000.

It’s still worth something; I mean if you see 15 dimes on the ground you pick it up, right? It’s just not worth as much as it was.

And your 3% only covers what you borrowed.

Say your home is worth $1.2 million and you owe $400,000. The rate only touches one third of it.

The other $800,000 is your money, sitting in one house on one street. Appreciating at…….? Used to be about 6%, now I think it’s substantially less.

And if you own your home outright, there’s no rate holding you there at all. You’re just staying.

Now ask the other question. What is the house costing you?

Rooms you pay to heat and never use?

Stairs that get a little harder every year?

A long drive to work, or living far from the lil bambinos?

The remodel you keep meaning to get to?

In Boulder, painting the inside of a 3,000 square foot house can take most of that $18,000.

And that’s before the kitchen, the baths, or the yard.

That side has a number too. Unused rooms, a longer drive, and a couple of flights a year to see family can pass $20,000 without trying.

Here’s the easy way to see it. Say it’s $24,000 a year.

Divide that by the $400,000 you owe and you get 6%. Add that to your 3%.

That’s 9%. Higher than today’s 7.5% mortgage rate.

That 9% is your life rate. It’s what the house is really costing you.

I know it’s easy for me to spend your money, so I won’t.

You put the numbers on your house. I’ll just help add them up.

If you love your home just the way it is, that’s a great answer. Keep it, keep the 3%, and we can revisit in a couple of years.

I hear it often: “I’m never giving up my 3%.” I get it. Most people refinanced back then.

But a good loan is just a loan.

It shouldn’t decide where you spend the next ten years of your life.

I don’t know about you, but every time I pick up little Otto or Freddy, I think to myself, “how many more Thanksgivings are there really?”

I’m sorry, but I do.

A house should fit the life you have now, not the one you had when you bought it.

Those years in a home that fits your life now matter more than the rate.

Want me to run your numbers? Just reply “rate.” It’s one page, and there’s no pressure to sell.

If the math says stay, I’m happy to keep dripping my inimitable wit on you and encourage you to revel in your 3% mortgage.

But if a change is in order, I do know how to run a swap.

I’ve been doing swap trades for a long time.

Peace