Advisors and clients are using low rates to do strategic refinancing.
With interest rates at 40-year lows and mortgage refinancing emerging as a powerful planning tool, financial advisors are no longer just indirect players when it comes to their clients' mortgage issues.
In an era of poor returns on financial assets, the expense side of Americans' financial picture is assuming a position of growing importance. Many advisors are taking the lead in their clients' mortgage decisions because these loans are one place they can be certain to add value and increase clients' income. In fact, many economists believe that mortgage refinancing is the primary reason why U.S. disposable income climbed 8% in the last year.
This is happening is due to a confluence of several trends, advisors say. Obvious reasons are attractive interest rates and equally attractive opportunities to take advantage of them through refinancing. Another key ingredient is that clients are looking upon their homes and other forms of real estate as their best investments as the bear market continues to erode equities. Consequently, an increasing number of clients are turning to their advisors for creative ways to put their home equity to work.
At Everhart Financial Group in Columbus, Ohio, so many clients were in need of mortgage advice that the firm started its own mortgage brokerage firm, Everhart Mortgage Corp., a year ago, says group partner Andy Keeler. Charging a flat brokerage fee of $2,200 on all mortgages, the firm has raised $120,000 in revenue from client and other customers. "That's a lot of activity for a new company and for the majority of that period it was one person processing those loans," says Keeler.
The firm considers the mortgage brokerage a win-win situation that will survive an increase in interest rates because it has strengthened their advisor-client relationships and provided the company with a new revenue source. While advisors have generally had an indirect role in mortgage issues, Keeler feels advisors increasingly will find that it should be an integral part of their practices.
"Mortgages have not been the domain of advisors at all-not even close," he says. "But it's such a big part of what people do, you'd think there would be a better understanding of it."
Three years ago, when it was clear a bear market was settling in, Jim Abel decided it was time for his firm to find new ways to provide value to clients. "From a big picture perspective, we asked ourselves, 'What is really doing well now that we can assist our clients with?'" says Abel, president of Physicians Financial and Insurance Services in St. George, Utah.
What he hit upon was mortgages, and the fact that so many of his clients-doctors and other medical professionals-held 30-year mortgages at 8% or more. With interest rates still on the downswing, Abel took mortgage classes and became a licensed mortgage-lending officer. He also interviewed mortgage brokers and selected Continental Mortgage Inc., also in St. George, for his back-office services and as a place to hang his license.
Over the past year-and-a-half, Abel has helped about 60% of his 125 clients refinance their mortgages. "We've told our clients the stock market will do its thing, but in the meantime, let's look at other ways we can help you," he says.
In most cases, Abel has been able to refinance clients from 30-year to 15-year mortgages with small changes in monthly payments but in some cases hundreds of thousands in savings over the length of the loan. On a $300,000 mortgage, at 30 years with a fixed rate of 8%, Abel says he can currently get clients into a 15-year loan at 5.25%. In this example, the monthly payment would go from $2,200 to $2,400. However, the overall payout will go from $760,000 to $432,000.