Buying Into The Consensus Is A Losing Proposition
Published on: 11/16/2021
In this edition of Chart Talk, Tony Ogorek and Jeff Viksjo look at mortgage rates over the past 40-years to show how making a single good financial decision can provide you with profits and savings for decades.
Welcome to another edition of Chart Talk. I’m Tony Ogorek and I’m here today with Portfolio Manager, Jeff Viksjo. And you know Jeff, we look at the history of things and often times you don’t need to make a whole lot of different decisions that have to be correct. Sometimes, you just need to be making one decision that’s correct, and if that is the right decision, you know, it can play out for decades, providing profits and savings to you. And so I think today’s chart is, sort of, a great example of that. This takes a look at mortgage rates over the past 40-years and interesting what it reveals. So Jeff, let’s dive into this. What do you see?
Yea, you can see for 40-years, mortgage rates have been going lower and I’m sure along the way the consensus opinion always was, you know, mortgage rates can’t possibly go any lower than this. So, lock it in long term. Well, you can refinance. So that decision was mostly made to go into a 30-year fixed rate. The best decision, looking back, no doubt, would have been to do an adjustable rate mortgage; where the rate would actually adjust lower, because mortgage rates could go lower, and they did.
And let’s face it Jeff, you know, the people that are putting commercials out there, right, telling you now’s the time to refinance, guess what? They have a financial interest into telling you it’s time to refinance. But if you look at this 40-year retrospective on interest rates, the smartest decision you could have made was just to get an adjustable rate mortgage and ride it down with interest rates. But you know, a lot of people have loss aversion, and their framing is ‘I’m afraid that rates are going to go up because they did before, and so what I have to do is protect myself by continuing to refinance’. Unfortunately, they ended up paying a whole lot more interest than they needed to over the past 40-years because of their loss aversion.
Thank you for joining us for this edition of Chart Talk.