Page 20 - July 2021 Issue.indd

DOLLARS AND SENSE by Tolbert Rowe

Managing Your Mortgage Term
Now that I have reached the milestone today at piddly rates of .1% you have on the monthly payment savings buy
age of 62 and social security eligibility earned $513. refinancing to a longer term (their
is now a career option, I find myself current mortgage has 19 years left)
I had an interesting conversation with
becoming more intrigued with interest. when he said that he was thinking
gentleman recently who, at age 66 was
Not interest as in a hobby but interest of doing the exact opposite of what

contemplating refinancing his $150,000
as a fee you pay for the ability to use his advisor suggested and pay off his
mortgage to a 30-year term at 3%. His
someone else’s money to acquire mortgage completely. Being somewhat
financial advisor had recommended
something and interest you receive for conservative regarding risk he had
this move for him so he could lower his
allowing someone to use your money. almost $200,000 in CDs, none earning
monthly payment from $980 to $613 (I
more than 2.25%. He was considering
I have spent more than 36 years of my am leaving out his monthly escrow for
using them to pay off his existing
life assisting people to borrow or use taxes and insurance since you have these
mortgage as they matured and fi gured
other people’s money to acquire or expenses whether you have a mortgage
that in less than 2.5 years, he would have
refinance homes. When I began my real or not). Saving $367 per month in cash

no mortgage.

estate career in 1981 by becoming at that flow savings sounds like a no brainer,
time the youngest realtor in Caroline right? Maybe…. As our discussion unfolded, we both
County, 30-year mortgage rates were By taking out a 30-year mortgage in acknowledged the old investment
18.5%. 6 times what they are today. philosophy of borrowing at low rates
his mind he was borrowing for the rest
Borrowing $100,000 in 1981 would cost of his life since he would be 96 when and invest at high rates. If you can
borrow at 3% and invest and receive 5%
you $1,547 per month. Today, at 3% the the mortgage was paid off. At $613 per you are making 2% on the difference

payment would be $421. A whopping month, he would be paying $7, 356 per or spread. Interest rate spread is the
difference of $1,126 per month or year which will take close to $9,000 in difference between the rate that you are

$13,512 per year in higher payments. annual pretax income to service.
paying and the rate you are receiving.

Of course, back then you could buy a He and his wife have monthly income of This is how banks make money. Th ey pay
genuinely nice home for $100,000, today approximately $7,000 per month coming a lower rate to get deposits in the door
not so much. from social security, a small pension, and they charge a higher rate when they

and a part time job. They have a total of lend money out the door.
On the savings side in 1981 CD rates
$800,000 in savings and investments, of
were more than 12% for 5-year terms. If he were to follow his advisor’s advice,
which $550,000 is in IRA’s/401ks and

Putting money in a CD for 5 years at he roughly figured that a 2% spread on
$250,000 in cash, money market and
12% meant your money would nearly $150,000 was $3,000 per year in added
CD’s.
double at the end of the 5-year term. Put income by investing $150,000 of his
$10,000 in a 5-year CD in 1981 and in Our conversation got more interesting, CD money instead of using it to pay off
1986 you have almost $18,000. Do that and I strayed a bit away from focusing his mortgage. But if he did refi nance it
would take $7,356 to service the debt
for a year which is more than double
what he was saving. He was fi nding it
“Your Mortgage Consultant Since 1985”

difficult to justify refinancing and was

Purchase or Refinance concluding that he would be better off
long term not having a mortgage at
all, having $613 more per month to do
something with, either spend or save.
Obviously not everyone has the kind of
resources he and his wife do. Obviously,
115 E Dover St. Ste 3 - Easton, MD many people do not have the ability

tolbert@baycapitalmortgage.com C. Tolbert Rowe, to consider paying off their mortgage
www.baycapitalmortgage.com NMLS Vice President/Lending with accumulated funds. This is why
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I advocate strongly to manage your
410-819-3005 / cell 410-310-3520 mortgage term so that it will be paid in
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