Last week’s wine bar investment fiasco story was a hit, so here’s my second biggest financial mistake. This one hits a little closer to home.

 

I’m one of those idiots who, when in the midst of the lowest interest rates in 600 years, didn’t refinance his biggest loan into a permanent rate.

 

That’s right, for reasons that are a tad opaque to me now, in 2021, I refinanced our home mortgage of around $1.5mil at 2.875% (woohoo!) for seven years (boo), until January 2027, when it goes adjustable, meaning UP (boooooo! hiss!).

 

Now, in my defense, my tax returns are complicated, and Lori was between jobs and nursing twin infants, so the rate on 30-year for us was 4.5%, which seemed insanely high at the time (!) and pushed our monthly payment into painful territory. I thought, “I’ve been hearing about rates going up for 25 years, and they never did, so what the hell?”

 

We all make mistakes.

 

How much will my rate go up in two years? I had to look it up. If you have an adjustable loan, the terms of the adjustment are not on your monthly statements—you have to find your “note,” which came in your closing package. If you can’t find it, just call your bank, and they’ll send it to you.

 

So here’s mine (and I just learned this): My loan will adjust to 2.75% plus the “1 Year Treasury Rate,” which is currently (checks internet) at 3.95%. So, if nothing changes, my mortgage will jump to 6.7% in two years, doubling my monthly payment. Yikes.

 

We are definitely refinancing. 

 

But not right away, and not just because rates continue to go down. The good news about my 2.875% is that half my monthly payment goes to the principal—directly to the mortgage balance. One of the benefits of a low interest rate, besides a low payment, is that more of that payment goes to paying down the balance.

 

Between now and when I have to refinance, another $100,000 or so will be burned off the mortgage, so I’m in no rush to do so.

 

But knowing what’s coming, I’m already considering what kind of loan to get. And it turns out Lori likes the idea of getting a 15-year mortgage and paying off the house.

 

Mmmmm. Now, those of you who read this newsletter and/or watch our videos know I’m not a huge fan of paying down your mortgage in advance. Letting inflation shrink the balance (inflation makes it appear lower) to the tune of 2-3% a year (average inflation numbers) vastly exceeds the few hundred extra you are throwing on. 

 

And it’s always been my philosophy to use your cash to invest - in fact, I built my portfolio on cash-out refis and putting as little down as I could to allow more cash for down payments on other buildings…

 

But I was much younger, and Lori thinks that it’s time to play a little more conservative.

 

As both our parents can attest, it’s much harder to retire with a house payment. And as Suze Orman says (she’s the rare financial guru who advocates this), no one ever regretted paying off their house. 

 

40% of American homeowners don’t have a mortgage at all, an all-time high. Any of them could get a mortgage, but they don’t. They must know something. 

 

There’s also some conventional wisdom that says why risk the high payment of a 15-year? Just get a 30-year and make extra payments. But we all know that doesn’t happen.

 

Maybe a paid-off house is in our retirement future. We have two years to think about it. 

 

🔑 933 Nolden St, Highland Park - A turn-key home in the heart of Highland Park - Listed at $999,000 - Open Sunday 12-3pm serving up Kitchen Mouse

 

🔑 4109 Clayton Ave, Franklin Hills - A beautifully updated home located on the cusp of Los Feliz and Silver Lake - Listed at $1,749,000 - Open Saturday & Sunday 2-5pm

 

🔑 4164 Edenhurst Ave, Atwater Village - This beautifully redesigned Spanish-style home in Atwater Village offers charm and serenity - Listed at $1,798,808 - Open Sunday 2-4pm

 

🔑 2723 Hermosita Dr, Glendale - A stunning historical 1927 Spanish Revival character home - Listed at $2,198,000 - Open Sunday 1-5pm

 

🔑 3522 Perlita Ave, Atwater Village - Stunning Craftsman with a 100 year history features original custom woodwork - Listed at $1,610,000 - Open Sunday 2-5pm

 

       -Brock

 

✂ 📈 The Fed cut interest rates, but mortgage rates are going up. Why?

🏦  💳  🛍️ What's Your ‘Money Script’?

 

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