The Borrow Smart Chronicles - The Power of 5.31

a BORROW SMART CONCEPT
The Power of 5.31% in Story Selling

There are several fun ways to use 5.31%.

1) One that I used 100’s of times as a simple lesson, is to explain that when borrowing with a 30-year fixed rate mortgage, if you borrow at 5.31% you will pay back 100% of whatever you borrow as interest.

Example: You borrow $400,000 at 5.31% interest. How much will you pay back? You'll pay back $800,533. So, it's not perfect, but the closest we could get when explaining this to a client without a calculator.

When would you use this? This is a cool concept to have in your back pocket. I had one of our CLA students share that a financial advisor referred them because the client said ‘we want to pay cash because our parents told us we would pay back 4X what we borrowed.” So they were buying a $600,000 house and they believed if they didn’t pay cash they would pay back 4X, or $2,400,000 over 30 years. That’s wrong. You can show them they are wrong, but that’s not the best way forward!

You want to avoid telling someone their baby is ugly, which means don’t say you are wrong. Help them discover the truth for themselves.

I’d start with “did you know at 5.31% you are paying 2X what you borrow?” If you are borrowing today at 7%, do you think you’ll pay back 4X? Ok, so let them start to see that there is more to this that they might consider… then ask if they have other goals for Liquidity (do they want $600k tied up in a house for 30 years?), or Return (do they think they’ll have this mortgage at 7% for 30 years, or do they think rates might come down over 30 years? If they say down, then what would you expect to pay on average over the next 30 years? They may not know, so show them a historical chart of average rates… then ask them what their financial advisor thinks they might earn on the $600,000 over 30 years.

$400,000 borrowed over 30 years at 5.31% has another key thing to remember, it usually takes about 20-21 years to pay off the first half of the amount borrowed.

• Ending Balance of Debt after 10 Years: $328,367

• Ending Balance of Debt after 20 Years: $206,668 - the halfway repayment point

• Ending Balance of Debt after 30 Years: $0

  Another tip: most consumers think they’ll pay off half their debt in half the time, but it doesn’t work out that way.

Example of other key rates to learn: on a 30-year note:

3% rate - you’ll pay back about 50% of what you borrow as interest
9.4% rate - you’ll pay back about 200% of what you borrow as interest

2) Another use can be to help someone who is on the fence about buying versus renting. I’ll use 5.31 again, but I’ll ask them to multiply the home they want to buy by 5.31% as the additional carrying cost of the house outside their normal payments. Many consumers don’t estimate all the additional costs of owning a home. If the house is $100,000, then 5.31% of that amount is $5,310 / 12 = $442.50 per month. I’ll ask them if they could save that amount each month in addition to their mortgage payment. That savings is a cushion to handle the HVAC going out, the refrigerator being replaced, a roof repair, etc. If they can’t afford that extra, then maybe they should consider dropping down in house value based on a lower payment, or wait for their income to catch up. In other words, they may be better off renting. If they can, this is a FANTASTIC way to refer to a financial advisor to set up their 5.31% savings account, which if not use to support the house (and they will use some of it) the account can be used to pay off the house early.

3) Another use can be to help someone decide to buy versus rent. There are many reasons to buy and many reasons to rent. I’ve also used 153.1% for determining if they should buy or rent. If you are paying $1,000 a month for rent, and you want to buy, see if you can buy what you want for 153.1% of your rent. $1,000 X 153.1% = $1,531 per month… if you can buy that house or something like what you are renting it’s usually a great time to do so. If you can’t it might be a better idea to wait, as either house values are too high, or interest rates are too high, or you are not making enough money yet, etc. This is just a general rule of thumb, but I loved having high-level conversations with people before we did the fine-tuning… they remember the stories you tell.

4) Last one. If someone says they want to buy a house, I’ll ask if they’ll be there for at least 5.31 years. There is no magic to this number, it was just easy for me to remember and I found most people needed to live in a house for 5+ years to break even. So the 5.31 was easy for me to remember, and it left a mark on them as I could tie it back into other stories above, like 1), 2) and 3) to discuss renting or affordability.

LIABILITIES and DEBT
What’s Happening.

REAL ESTATE
What’s Happening?

ASSETS and INCOME
What’s Happening?

My Favorite New Financial Tool:
https://tradingterminal.com/

and this is a good read/share with your local financial advisor…

ON BEING HUMAN
What’s Worth Sharing?

DOPAMEMES
And Other Happy Moments…

Artificial Intelligence
And the Future of Work…

My wife spends a lot of time meal planning and lately we’ve played with ChatGPT - try this idea from PromptPerfect: (edit to your style)

Capture early trends when investing:
https://app.uptrends.ai/trending

AI assisted wealth management:
https://era.app/

Pricing engine for the best deals: (and see all reviews in one place)
https://theinformr.com/

Create a new logo for a project with this prompt:
Create a logo with a minimalist design that is easily recognizable and memorable. The logo should feature a house and money that is inspiring. Avoid clutter and focus on a single, strong visual. Use the color palette: #2a2e33, #e3824a, #bf5245, #fff5e1, #b5a9c5, #459fa0. Result:

Borrow Smart University || National Institute of Financial Education