Stir It Up!: Simmering in the World of Blended Interest Rates

Episode 41.

Unlock the secrets of financial well-being with Gary Kawano of Success Lending as he shares his expert insights on Blended Interest Rates. This is a crucial exercise for anyone contemplating down-sizing.

With thirty years in the mortgage industry, Gary shares a wealth of knowledge to our latest podcast episode. He skillfully breaks down why keeping an eye on your overall financial health extends well beyond your mortgage rate. Through relatable client stories, we showcase how a comprehensive financial snapshot can be the deciding factor for down-sizers in today's economic climate.

Our discussion with Gary doesn't just illuminate the technicalities of blended rates; it's also a treasure trove of strategies for managing personal debt. Whether you're wrestling with the decision to refinance or seeking ways to balance savvy financial choices and immediate cash flow needs, our conversation addresses the broader housing market trends that affect your wallet. With resources tailored to complement our discussion linked with the episode, you'll have the tools at your fingertips to navigate the often perplexing world of personal finance. Tune in for an episode packed with actionable advice to take a comprehensive look at your overall finances, that  could be the catalyst for your next smart move.

Check out our Youtube version: https://youtu.be/p7G8qHb-zuc


Gary Kawano
Producing Area Manager | NMLS #455499
Direct: |  (760) 809-1597
Mobile: |  (760) 809-1597
Gary.Kawano@successlending.com
Licensed In:  AZ, CA, CO, FL, TN, TX, WA

Transcript

Dennis Day: 0:00

Welcome. It is a day in the Pacific Northwest, we are heading towards 80 degrees and I am excited for Mother's Day weekend. Judy, do you think you're going to be spoiled this weekend?

Judy Gratton: 0:12

I better be.

Dennis Day: 0:15

Yeah, I've got my weekend planned A lot of cooking so welcome to Getting your Edge Out of Right Size your Home and Life podcast. I am Dennis Day and my co-host is Judy Gratton. Our special guest today is Gary Kawano of Success Lending, and he's here to talk about blending interest rates. All this can help down-sizers. Gary, please introduce yourself and tell us who you are and about Success Lending.

Gary Kawano: 0:48

Like Dennis said, my name is Gary Kawano and I'm currently in Carlsbad, California, husband, father of four and been in the mortgage industry for about 30 years. Industry for about 30 years. I work for Success Lending and we are a combination, a joint venture, if you will, of Kind Lending, a company owned by Glenn Stearns, and EXP Realty. They've come together and formed Success Lending. So Success Lending has been around for a couple of years, but the staff and the team are definitely veterans in the industry.

Dennis Day: 1:29

Would you like to go with the first question there, Judy?

Judy Gratton: 1:32

Sure, Well, to begin with, Gary, can you please explain to people what a blended interest rate? What is that and how does it differ from talking about just a regular mortage rate?

Gary Kawano: 1:47

Yeah. An interest rate can be interest rate on anything credit card, car, home and that's the amount of finance charge you're paying on that amount borrowed. So interest rate is the amount of interest you're paying as a finance charge for the year. Interest rate is the amount of interest you're paying as a finance charge for the year. A blended interest rate is something that's commonly used and we're hearing more and more about it because a lot of folks were smart enough and lucky enough to secure a really low interest rate on their large purchase transactions like their mortgage, their automobiles, things like that when rates were really low.

Gary Kawano: 2:26

Now, now the rates are higher, people are reluctant to they're really proud of that great mortgage rate they got, and rightfully so. You know, a lot of times it's the largest thing they're financing, so they're really they love that rate. But in reality, a lot of Americans are also getting other debt automobiles, credit cards, student loans, personal loans, et cetera, home improvement loans and those rates are going to be a lot higher. So hence the term that's become a little bit more popular is what is your blended rate? You know a lot of people quote off the top of their head what their mortgage rate is. They see it every month or they remember when they secured their mortgage. But they may not know their blended rate, which is what is your interest rate with all your finance charges combined in a form of an interest rate. Once we get that rate, then it's kind of easier to compare.

Judy Gratton: 3:26

How do you calculate that rate? I mean, is it an average of all your interest rates or just exactly? How do you get there?

Gary Kawano: 3:37

Yeah, and I can actually send you a link that you could forward to any of your listeners that want. I just created an Excel spreadsheet. I do it on my calculator, but it is exactly that it's an average of your finance charges in proportionate. So you have your interest rate and you have your balance and that's going to determine your finance charge. If you have a number of different debts, we can determine what the finance charge is for each debt, and then that would allow we can determine what the finance charge is for each debt and then that would allow us to determine what the blended interest rate is.

Judy Gratton: 4:11

And I know it's interesting, because we were having a meeting at a Starbucks the other day and a gentleman asked us if we were in real estate and started talking about they were renting and waiting for interest rates to come down and home prices to come down, and I tried to explain the blended interest rate to him, because that makes so much sense to me. I think currently, in the economy that we're in right now, a lot of people have begun to rely on credit cards to make up because things like food and gas and the things that we cannot not buy, the prices have gone up, and especially people who are considering downsizing, some of which are on limited fixed incomes. Those credit cards become very easy to use, and so, with this blended rate, how would it benefit them to go ahead and sell? Because a lot of people don't want to move because of that three and a half percent interest rate. I was one of them, and once I heard the term blended rate, I'm like whoa, what is that? And so yeah, exactly.

Gary Kawano: 5:33

So I use the blended rate as as a tool to help compare or help us decide our options. So it's a gauge, it's a metric, it's a barometer of what they're paying in finance charge. So we wouldn't go out and secure a blended rate, but it allows us to use it, you know, just like blood pressure or weight or BMI, something to kind of gauge the health, the financial health, of that person. So, for example, I just used a past client and I punched it in for preparing for this call. This person had a mortgage of 4.5% balance, $200,000, an auto loan $8.62. I made that up. I just looked up the national average $20,000. Credit card again, I just looked up the national average uh, 20,000, uh. Credit card, again, I just Googled the national averages uh, 19.2, one at 19.2, uh for 10,000, one at 19.2 for 15, one at 14.51 at 15 and one 14.51 at 9,000. Again, I just I just searched uh, uh on Google, um, and so the total of of liabilities was 269,000. Um, there again, their mortgage rate was four and a half rate interest rate.

Gary Kawano: 6:59

A lot of folks got even lower rates, some some higher, depending on when you got it, what type of loan, a lot of things. But um, so the rate in their mind, what type of loan? A lot of things. The rate in their mind, the rate that they're familiar with, the rate that they could quote off the top of their heads 4.5, but their blended rate is actually over 7%, even though the debts that are smaller add up. But those are the ones at the higher rate that bring that average from 4.5 closer to 7. So that's kind of I use that tool as a blended rate, or use a blended rate as a tool to kind of see what their overall finance charges on their liabilities.

Judy Gratton: 7:39

And how does that blended rate impact their monthly payments? So they're looking at the mortgage and the payment is so much better than what they could hope for, but but they're also paying those credit cards, hopefully, and and the car and everything else.

Gary Kawano: 7:57

So yeah, two things. Um, again, just like we're looking, uh, when we do a full spectrum analysis, the interest rate is going to let us know what their finance charges are going to be. Cash flow is going to be different. So cash flow is going to be their monthly payments. So with that same borrower I kind of did some rough numbers with a financial calculator and estimated what their payment would be on those rates, with those terms and the total rates. So the mortgage payment was $1,432. But the total payments with the automobile and the four credit cards was $2,806, $2,806. So two different things that we're looking at. One is what's the cost of the finance and the other is what's the cash flow hurt, what's the monthly cash flow With that? I kind of again to look at the real estate example. I said what if that person secured a home a long time ago? But let's say the home is worth $800,000 today and a home in your area is $750,000. I just kind of Googled a couple of the cities in your area. How off am I on that?

Judy Gratton: 9:17

That's off the lower end probably. I mean that's probably on the lower end in parts. I think overall in Washington State.

Gary Kawano: 9:24

I didn't want to scare them with the house on the hill, so I just kind of used $750, used 750 to get the conversation started, so sold for 800 in this example, looking to buy for 750. The first thing is can't do it. You know, judy, the interest rates are twice what mine is, my payment's twice as high. There's no way. Maybe if rates drop to four and a half I'm barely able to make ends meet, as it is kind of thing. So I didn't take in consideration taxes and insurance because that's such a variable. I mean, if you're coming from Chicago or California or Texas East Coast, all the taxes are different. So that's kind of more of a one-on-one conversation that they'd have with you. But just in general, let's just look at payments. I can look at interest rate and I can look at payment, because that's going to stay the same for everyone. So that person it sold for $800,000. If you take I just looked up average commissions and costs for selling a home, minus that $200,000 mortgage that I used in my example they would have, and then paying off all the debt, paying off the car, paying off four credit cards, they would have $475,000 to put down, would have $475,000 to put down. So putting that $475,000 down on that $750,000 purchase.

Gary Kawano: 11:02

I use today's rates, 25% down. I at 6.375, again, no points, not to get too technical lingo, just kind of let the listeners know what kind of rates I'm using. It's actually surprising. Their new rate is let's see if I can read my notes here Well, obviously 6.7, because the blended rate is at one rate because there's no other debts.

Gary Kawano: 11:36

So their interest rate is actually lower than the blended rate that they had before, had before and on a cash flow, even though their home loan goes up, because their mortgage goes from 200 to 275, so their loan does go up, so the home loan payment does go up by $441, but their interest charges goes down $6,078 a year. They're saving on interest and their payment. Their cash flow actually improves by 933. So again, just kind of food for thought. It's not my payment's going to be twice as high, because a lot of times people are thinking well, do I have a car payment, do I have personal loans, do I have a home improvement loan? And those are the kind of things that I like to have, that conversation that sometimes people are missing. Just another option.

Judy Gratton: 12:37

And when you were talking about this hypothetical client that you had with what their total cash flow, was my question. The thought was you know, with four credit cards, how much are they paying off on those credit cards? So how much more, um are they paying out an interest? Because if they're only making minimum payments, the interest really starts to begin to build up, um that they're going to end up paying and it just, I mean it, makes it.

Judy Gratton: 13:11

When I heard that term blended interest rate, a light bulb went off in my head, because I personally am one of those people who would very much like to downsize and I'm hanging on to that three and a half percent interest rate. You know I don't have car payments right now, but I do have some credit cards and a HELOC and I have to look at that. I'm going to have to look at that and once I know what that number is, you know it will make it much easier for me, I think, to at least look at the option of buying at a lower rate. But you've saved so much money by purchasing now rather than waiting two years when the home has maybe gone up $200,000.

Gary Kawano: 14:17

Absolutely, absolutely Secure a little lower tax rate. There's a saying you marry the home and you date the rate you know, the rates come and go. Um, we, we, we, no one knows, we, we try to. Uh, we spend a lot of money to predict what rates you're doing. No one knows. But uh, yeah, we do know this, they go up and down.

Dennis Day: 14:41

Gary, how often should homeowners be assessing their uh blended rate versus their mortgage rate to see what they are really paying for debt?

Gary Kawano: 14:56

I'd say on average, once a year would be fine. Just kind of assess if you've got any new liabilities. Have you bought a new car, got a new line of credit, transferred any credit card debt or added a new credit card, things of that nature, the mortgage you're typically not refinancing that too often but it's not uncommon to. You know, buy another car for the kid, or you know they've got their driver's license or you know, or opened up a new line of credit. Homes are so expensive. You looked at homes and everything is so expensive. You decided to get a home improvement loan and do the home improvements on the home. You have that kind of stuff. So once a year I would say that kind of stuff.

Dennis Day: 15:50

So once a year, I would say. In essence you're combining all your debt and getting an average interest rate on all the debt versus just your mortgage Am.

Gary Kawano: 16:01

I correct. Yeah, yeah, and again, it's a financial tool that we're using to analyze financial health and kind of a truer cost of your debt. It's a little harder to it's easy to know what you're paying on your mortgage. It's a lot harder to know what you're paying on all your debt combined. This can also be used as a tool for refinancing. So a lot of times, mortgage brokers or mortgage lenders will use this tool to see if it's a benefit to refinance. If your mortgage is 4.5%, when does it make sense to refinance that debt? Maybe do a cash-out mortgage and combine all your debt? That's another use for the blended rate is figuring out what your total cost is. So then, if you got a new mortgage to pay that off, what would that interest rate need to be in order for that to make sense? That's another commonly used thing for the blended rate.

Judy Gratton: 17:04

So, gary, could someone come to you for that information and what would they say to you or another lender if they wanted to know, if they wanted to see that number and understand how it's affecting their daily lives and their cash flow and the whole nine yards to make a decision? I'm kind of beginning to see that we try to encourage people to pay attention to the value of their home, because every time a home sells, it changes the value of your home. But at least annually, to look at that, to look at what your equity report is, to determine how much money you have in your home, and I'm beginning to think maybe this blended rate should be done on an annual. It's almost like some kind of I'm trying to come up with a term for the whole shebang that people should look at, because this is often the largest investment that people have is their home, and there's so many parts that affect their lifestyle and there's so many parts that affect their lifestyle and whatnot. But so could they come to you and say what would they say?

Gary Kawano: 18:19

Yeah, if I knew their balances and the rate on each liability associated with that balance, I could quickly determine their blended rate, which would be kind of the true cost of their outstanding liabilities, and I'd be more happy to do that.

Judy Gratton: 18:36

Can you give them any advice regarding that? If they're not sure what they want to do, if they don't know if they want to refinance, sell whatever, stay within that, could you help them make an educated decision, I guess.

Gary Kawano: 18:56

Yeah, I mean, every situation is different and the two things that I like to kind of focus on. One is the cost. So, if money is no object, what's the smartest use of your money? What's the lowest cost of your money? What's the lowest cost of your money? That's one way to look at it. The other is cash flow.

Gary Kawano: 19:16

In some cases we just can't afford the quote-unquote smartest thing to do. Sometimes we have to get a credit card, or sometimes we have to get a line of credit, or sometimes we're doing a 30-year term versus a 15-year, just just for cash flow. So, um, and then real life is you try to balance them both right, it's kind of like eating healthy in real, real world situations. We try to do the best with what we have, and that's kind of in finance. But, um, yeah, just like, if it's a good idea to jump on the scale every once in a while, it's a good idea to get a financial checkup if you will See what your home value is, just so you know your options. You know when the stock market's going crazy, I rush to open up the stock statement, but sometimes it's better just to throw it in the desk and you don't have to open it up every month.

Gary Kawano: 20:10

Same thing with this. I mean, everyone knows. Try to reduce your liabilities. The banks are making money for a reason by lending it out, so try to pay it off as soon as you can and try not to finance as much as you can. Those are kind of good rules of thumb, but life is life and reality is reality and you know it may be someone wants to relocate to a single level home or closer to their children. It's not, that's not necessarily a strictly financial decision. It's more of a can I do it? Is this something I can do? I want to live closer to my family, or I want to live in a different climate or a safer home for me as I'm getting older, and that's. That's a whole different conversation.

Judy Gratton: 20:56

Right, but but part I mean all of this is part of it. Yeah, value of your current home. What's the condition of your current home? What are the needs there If you were going to sell, if you were going to stay, what is your financial obligation? The blended rate thing look like for you?

Gary Kawano: 21:16

Correct.

Judy Gratton: 21:17

I think it's so important for anyone I don't care if they're downsizing or not to have a pretty good idea of that and I just when I heard that, I was just. I'd never heard the blended rate thing before and I was fascinated by that.

Gary Kawano: 21:32

Yeah, it's more of an industry term, so it's not really out there, and when you, when you ask me about it, I'm absolutely happy to talk about it, but it's definitely something that most industry professionals aren't using on the real estate side. That most industry professionals aren't using on the real estate side. It's something a little bit more.

Judy Gratton: 21:52

Yeah, I haven't heard the term, but I think it is. I think more people should be looking at it, talking about it, because I know personally I'm hanging on to that 3.5% interest rate.

Judy Gratton: 22:07

I don't think I'll ever see it again in my lifetime, and it's like the conversation we had with this person. It's like I'm waiting for the home prices to drop and I'm like, well, you know, the thing about dropping home prices is it generally means we have a very bad economy, and I said so. It's not really a win. When prices go down, the thing to try and do is get in now, buy something and then work your way up to your dream home. Uh, but you're always paying. If you're paying rent, you're paying somebody else's mortgage, so you might as well pay your own yeah so anyway, well, that I personally think is really fascinating.

Judy Gratton: 22:50

What do do you think, dennis?

Dennis Day: 22:52

Yeah, it's just a more comprehensive look at your whole financial situation versus kind of a siloed look at just your mortgage rate. Wow, I've got this great mortgage rate. Well, yeah, but what is the whole financial picture? Well, yeah, but what is the whole financial picture? And, Gary, you've probably run into people who are like, oh well, maybe we'll sell our house, but those interest rates, et cetera. Have you come across situations where people have maybe decided that, oh, this is a good idea, that selling the home and getting rid of debt and so forth is actually a benefit?

Gary Kawano: 23:34

Absolutely, absolutely. Like I said a lot of folks we're all in the same boat. It's not unusual that they'll have a very low interest rate on their mortgage With that Right along with a higher rate on an automobile, home improvement loans, credit cards. That's more normal than unusual. So I see that a lot of times. So a lot of times the conversation is we're moving, we're selling one home, we're buying another. Should I pay off this debt or put a larger down payment towards the home? Those are usually the conversations we're having.

Gary Kawano: 24:18

That's when I'll break out this tool and more often than not it makes more sense to pay off that debt and put less down on the mortgage Because, yes, you're getting a larger mortgage, but you're getting a larger loan with the rate in the sixes versus the rate in the teens. And then also it helps with that cash flow, because a lot of times when you are resetting in this example that I gave, their cash flow was improving by $933. But again, I wasn't taking any taxes or insurance in consideration it's common that your taxes are going to go up so that $933 savings in the payments can help offset a possible increase in your property tax. Insurance is going up same thing. That's a whole other podcast. The insurance thing is crazy and we're seeing that across the country.

Judy Gratton: 25:14

So, gary, now you're in California.

Gary Kawano: 25:17

Yes.

Judy Gratton: 25:18

Are you licensed? Can you do loans outside of California, or would you connect them with someone else within? Your organization if they reach out.

Gary Kawano: 25:28

Yeah, I can refer them to across the country, all 50 states. I'm licensed, you know, in 10 states, so I could personally help them in a number of states as well. But yeah, more than anything I'd love to be a resource, like I said, I'll send you that link. I think I'd send them that link. So it's nothing fancy, but it's just something I created for this call.

Judy Gratton: 25:54

I'll link it to the podcast. But it's just something I created for this call. We'll link it to the podcast, okay.

Dennis Day: 25:59

Yeah, but more than happy to answer any questions or be a resource for them. Okay, so we'll put your contact info in the transcript and the summary of the podcast. Is there something else you want to share with us?

Gary Kawano: 26:15

No, I just appreciate the opportunity. Like I said, I'm sure you're not alone on the interest of this, because it's not a commonly thought-up concept, to be honest with you. So kudos to bring that up, I think your listeners would hopefully have found some insight on that.

Dennis Day: 26:38

Gary, thank you so much for your time. I'm so excited I've learned something and I'm going to start looking at my whole debt rather than just my great mortgage rate. And we should somehow. We've got to get the word out to particularly the downsizers who really do. I think there's a great desire for people to change, but they just can't because of those low interest rates.

Gary Kawano: 27:11

Absolutely Well. Thank you, Judy, Thank you Dennis, I appreciate it.

Dennis Day: 27:14

Absolutely Well. Thank you, judy, thank you, dennis. I appreciate it Awesome, really. Thank you, gary, and we'll put all your info in everything we do.

Gary Kawano: 27:25

And as soon as it's up and running, we'll give a link to you. Ok, awesome, thanks guys.