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How about a $6.79 Trillion Dollar Off Payment Coupon

Your mortgage is your largest expense (at least it is for 85% of US Citizens) and it is subsequently the largest debt for about that same % of consumers.


With total debt in the US at $16.9 Trillion, we can see that $11.92 Trillion is mortgage debt - about 70% of all debt is mortgage debt. The balance being student loan debt, auto debt, installment and credit card debt, etc.



Why is that such a big deal?

Currently over 65% of all home owners have mortgage rates below 4%, when the long term average mortgage rates are typically 7%. That is a 3% discount on $11.92 Trillion in debt payments.


Think of it like this: 4% mortgage debt for the entire country is a big discount to the 7% they would normally pay. It is a 57% discount on the mortgage payments of that $11.92 Trillion in debt.


If your mortgage payment on a $500,000 at 7% was refinanced to 4% - your payment dropped from $3,326 to $2,387 = $939 a month in free cash flow compared to what was traditional paid at the higher interest rates. Where does that $939 go? Into spending or saving. If you spend you stimulate the economy, if you save and stock prices go up, there is more money for the economy. Stimulus stimulus everywhere.


Higher rates hurt new buyers more that prior buyers.

Why is this economy so resilient? There are Trillions of dollars in free cash flow that were created from the last refinancing boom... that's a positive. The negative is that people who are now addicted to that $939 savings won't want to buy a new house with a mortgage of $650,000 at 7% as they'll have to reduce their current lifestyle when that new payment of $4,324 is presented against their current payment of $2,387 - that's a $1,937 a month pill to swallow.


It's not impossible to overcome, it is simply a headwind to be aware of...



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