I too am guilty of becoming indifferent or jaded to the same worn out message we hear for weeks or months on end and when we hear the same message enough times, our "cry wolf complex" kicks in and we start to tune the message out. There are so many areas of our life where records are set or shocking news is no longer shocking.
Think about it.
After your 10th day in a row of 40 degree below zero temperatures in Minneapolis in the winter, you hear the weather person report a new record low of 50 below predicted the next day, is it really shocking to you at that point?
I can think back to before I was deployed to Iraq hearing that temperatures could reach 120 degrees and when I was sent over for the first Gulf War, I couldn't imagine those conditions in full combat gear. But after about 15 days in a row of 116 degree days, when 120 degrees finally hit one day, was it really unbelievable to me?
Also, remember the big joke in Austin Powers when Dr. Evil was going to hold the world ransom for "One Millllion Dollars" (visualize the pinky up to the corner of his mouth) It reminds me of being in grade school and trying to comprehend how many zeros and how much one billion dollars really was. Now, daily we hear our government spending trillions of dollars and now just shrug our shoulders when we hear about a new spending package or Senate bill costing 300 billion you almost think, "that's it, how is that going to help anyone?"
The "Cry Wolf Complex" at its best which most of us have naturally adopted.
I am very concerned though the CWC (Cry Wolf Complex) must be what is going on with home owners, my family, friends and clients when they hear mortgage rates have set new all-time low records over the past few weeks. Because if these messages or news reports really resonated with everyone, there would be a "run on the banks" for new mortgages.
You must have had to ask yourself by now, what does it really mean that a 30-year mortgage interest rate is at an all-time low and how does that translate to something you should be excited about? Well let me tell you since you asked, a heck of a lot!
Society has pushed us to only focus on instant gratification and what's in it for me NOW? Our tendency is to ask, "why would I spend $3500 in costs only to save $325 a month?"
Here is why.
My case study examples will use the same loan amount and interest rate.a client recently obtained. To make things easy, I did lower the loan amount slightly just so I could work with even numbers but the interest rates are the actual rates this client had before and after.
We refinanced their $300,000 mortgage that was at 5.875% and locked them in at 4.375% with $3500 in closing costs. The simple math when you lower your interest rate by 1.5% like my clients did, is a savings of $4500 a year in interest.
Are you still ambivalent to those numbers?
Let's look at what this meant to these clients and why a huge stressor was relieved and an answer to prayer became a reality in a matter of minutes once we looked at their numbers.
Their 3 year old was soon going to be 4 and that college savings plan they had promised each other to start the month he was born had not come to fruition and 4 years later they were still worried about it. They felt hopeless with no way to start saving anymore monthly with the current obligations and no plan to start.
Simply, we freed up $318 a month in cash flow with their new interest rate and the additional interest savings going toward principal reduction. With some quick math we looked at how that $318 reinvested monthly could perform over the next 14 years. We soon discovered if they just were able to average a modest yearly rate of return of 4.375% (safe estimate since they are paying this on their mortgage) they would have just over $73,500 in 14 years! These clients were shocked that they just created a sizable college fund for their son without changing any of their monthly cash outflow.
Another client had an almost identical loan scenario and their goal was to somehow pay off their mortgage in 20 years when they both had planned to retire but did not want to commit more cash monthly to paying down their mortgage as their main focus was to create wealth with their retirement plans. By taking that same $318 savings and adding it to principal reduction, it took their new 30 year loan down to a little less than 22 years. So we threw in another $60 a month they said they could afford and we now had their mortgage being paid off in 20 years.
Finally, a scenario where so many of us can relate with how our 401k's and other investments have taken significant hits and we are now realizing we will need to work a lot longer than we all had hoped for before we could retire. Investing this same $318 a month for 30 years at a conservative 4.375% ROR, an extra cool $344,000 would be accumulated toward retirement.
A lot to consider but instead of focusing on instant gratification where $318 extra a month may not mean a lot to you currently and the "CWC" has jaded you into not exploring your options, I would say it is probably time to reconsider.
