A few years ago, many of your clients who bought or refinanced took advantage of historically low mortgage rates — the lowest averages in almost 50 years. It’s one of the known contributors to the low inventory as consumers are having a hard time psychologically giving up that incredibly low interest rate that no longer exists. And while their mortgage rate is low, home values and consumer debt have risen — so how can you use this in conversation with your clients?

Let’s be clear — no one expects you to be a financial planner (or even play one on TV). But having a basic understanding of a few simple concepts could bring new opportunities to your clients and perhaps save them tens of thousands of dollars in debt. Not only can this provide short-term financial gain, but could also be the key to finally making the move they’ve been considering but couldn’t commit to — financially or mentally.

We know consumer debt — like credit cards, personal loans and student loans — typically carries a significantly higher interest rate than mortgage loans. Consolidating this debt into one single loan would blend all of those amounts and rates and could allow a homeowner to lower their overall monthly payments, even though they are trading out a lower interest rate on their mortgage. This concept is called a blended rate. Here’s an example:

• Your client has a mortgage they took out in 2021 with a 3% interest rate and owes $250,000. The home they bought for  $380,000 now has a value of $475,000.
• Since that purchase, they have also incurred $80,000 in student loans at 9% and $50,000 in credit card debt at 21%.
• The blended rate on these three loans is ($250,000 x .03 + $80,000 x .09 + $50,000 x .21)/$380,000 = 6.31%.

Current mortgage rates are in the mid- to upper 6% range, so if they wanted to sell and purchase a new home, they could use the proceeds to pay off that higher consumer debt. With current mortgage rates, the change in overall debt coverage is only a 0.5% rate differential. From a monthly cash flow perspective, their monthly cash outlay would not change and could even be lower due to the longer amortization of a mortgage loan.

With your Key Mortgage loan officer as a partner, you can provide your clients the opportunity to have these conversations and the ability to make sound financial decisions based on their long and short-term objectives – what a differentiator that can make for you to your clients! To learn more about this idea of blended rate or how to incorporate your Key Mortgage loan officer in your buyer and seller consultations, just reach out! They are always looking for ways to add value to you and your clients.