28 Nov The cost of waiting

Access an online mortgage calculator that will let you calculate the total amount of interest paid over the life of a loan.  How will that help with negotiation?

Topic – Talking tough

Mentor – Bernice Ross

• How to explain the pain of waiting
• Helping buyers and sellers become decisive
• Why waiting is not a good strategy

Prop Tech with Joel Leslie – Are you curios about Coicio and Property TV?  This is the future of marketing your properties.

Kevin:   What do you say in a tough market when someone says to you, “Well, you know, maybe we should wait?” Bernice Ross is our guest all this week, and Bernice is from Real Estate Coach Radio in the US, a very successful podcast. Very similar, in fact, to REUncut. We’ve worked collaboratively, Bernice and I, over many many years. Bernice will be our special guest as we stream content live from Inman in New York at the end of January next year.

Kevin:   Bernice, great to be talking to you again. Thanks for your time.

Bernice:   My pleasure being here, Kevin.

Kevin:   I’m enjoying our conversations this week, because I think it’s one of the things that separates great brokers or great agents from average ones and that is their ability to understand where the market’s at, the market they’re operating in, but more importantly to be able to educate buyers and sellers. Yesterday you took us through the rate of absorption. Bernice, I opened up today’s show by saying what do you say to someone when they say to you, “Hey, we would like to wait”?

Kevin:   The cost of waiting; how do we explain that to them, Bernice?

Bernice:   Well first of all, this is where it really pays to know your numbers. I assume that your listeners can access an online mortgage calculator that will let them calculate the total amount of interest paid over the life of a loan. If they don’t, there’s some here in the US … bankrate.com is one you can do, plug in the interest rate, the number of months of … The length of the loan, if it’s 25 or 30 years or 15 years whatever it is. Then you can generate this chart. There’s one at bankrate.com that will let you do that. If you’re looking for one that gives you the amortisation, so it will tell you not only the payment each month but it will tell you how much interest is paid over the life of the loan.

Bernice:   Here are some pretty startling statistics. So Kevin, assuming that we have a $200,000.00 loan, and I’m going to use US amortisation which is 30 years, but if you have a $200,000.00 loan with a 30 year amortisation and interest rate is 4%, how much more would you pay in interest if you waited a year and the rates went to 5%? That’s what they’re predicting out here, they’re predicting a full percentage increase. In fact, it’s going to be a little bit higher than that from what they’re saying. But just that 1% interest rate means on a $200,000.00 loan, they’re going to pay $42,772.00 in additional interest. That is up almost 22% of the loan amount in additional interest on $200,000.00. $42,000.00. That’s a big chunk of retirement.

Bernice:   Alternatively, if the rates go up by 2%, that number could increase to $87,937.00. That’s almost $88,000.00. That is 44% of the loan amount by waiting one year and if the interest rates were to go up 2 points. 44% of the loan amount.

Bernice:   So the cost of waiting is huge. People in a market where rates are appreciating then at that point you want to buy now, you don’t want to wait because you’re going to have to pay so much more in interest over the life of that loan.

Kevin:   Mm-hmm (affirmative). I guess it’s really working out what are the hot points? Because a lot of people don’t look at it in the way that you’ve described it to us there, Bernice. So to be able to sit down with a calculator and show them the pain of waiting for a period of time, it helps them make that decision.

Bernice:   Kevin, just a quick reminder again; you don’t have to calculate this on your calculator. You can go to one of the amortisation … Essentially the bank amortisation tables. I don’t know if they supply them in Australia or not, but they’re certainly here in the US. Bankrate.com is the one I always use. You want to make sure that you go for the amortisation.

Bernice:   But then what you’ll do is you’ll go in and you’ll put in the interest rate and then at the bottom it will tell you how much interest they’ll pay. Then you increase the rate by whatever the predicted increase … Here it’s predicted to increase in the next year, so I would go from today’s rates are 4.85%, I’d go to 5.85%. Find out how much interest I pay there, then you subtract the 2018 rate from the 2019 rate. That will give you how much more the interest rate is going to cost.

Kevin:   Yeah. So that website there Bernice has given to you, you’ll find a link in the description below. So have a look at that, and you may just find one in Australia and New Zealand as well.

Kevin:   Hey Bernice, great talking to you. Thank you, we’ll come back tomorrow and talk about affordability, which is a really hot discussion point in this part of the world, and I know it is too in yours. We’ll talk about the pain, turning up the pain and looking at declining affordability. Bernice Ross, our guest. We’ll be back again tomorrow morning. Thanks, Bernice.

Bernice:   Thanks, Kevin.