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.

The savings are even greater for clients with higher mortgages. On a $700,000 mortgage, merely dropping the rate from 6% to 5.25% on a 15-year mortgage will save a client $300 a month, Abel says. "In some cases, depending on the interest rates, we can actually go from a 30-year to a 15-year, and clients are going to a lower monthly outlay," he says.

Other advisors may not have gone so far as to start their own mortgage firms, but they have been responding to an upswing in mortgage issues among their clientele. That has prompted advisors to seek out contacts in the lending and mortgage brokerage industries, and incorporate mortgage strategies into their financial planning.

At Family Financial Architects in Natick, Mass., mortgage reviews are a standard part of a client's financial plan, including an assessment of whether refinancing is warranted, says Cheryl Costa, an advisor at the firm. The firm will also shop for mortgages on behalf of clients, she says. The use of a home equity line may also be recommended depending on a client's situation, she adds.

"Providing these types of services is something special that you can do for your clients that they don't necessarily expect their planner to do but that they are really grateful for," Costa says. "Plus, the pay off to the client is immediate."

Lenders also say they're increasingly working with financial advisors and their clients. "You always did try to work with planners in the past, but as their businesses have grown in the last few years, it means that we end up dealing a lot more with them," says Victor Steiner, senior mortgage account executive with Penn Federal Savings Bank in West Orange, N.J.

The opportunities created by current interest rates have given people options-and the need for some professional advice to sort through them, he says. With rates as low as 5.35% on a 30-year fixed mortgage of up to $75,000, with no points, even someone with a 6.35% mortgage could stand to benefit from a refinancing, he says.

But even after the refinancing boom ends, Steiner feels advisors can still play a large role in their clients' mortgage-related issues. "I feel that for the average John and Jane out there, when they first consider buying a house, their first call should be to their financial planner, not their Realtor," he says. "It's such a big part of their overall life plan they need to sit down with an expert ... The planner is the only person who can logically say to them, 'This is what you can think about, this is what you can afford.'"

For some planners, particularly those who run a comprehensive "family office" style practice, mortgage advice has been a longstanding practice. About half the clients at Preston Financial Planning, a Cambridge Advisors affiliate in Providence, R.I., have been helped with mortgages in recent years, either through refinancing or home transactions, says Rebecca Preston, president of the firm. In addition to clarifying options for clients and setting targets, she feels it's also important for advisors to help clients choose the professionals who will complete the mortgage transactions. "It really helps to establish a relationship with a mortgage broker," she says.

At The Welch Group in Birmingham, Ala., annual reviews of client mortgages are the norm, says firm president Stewart Welch. In recent years, however, there's been a significant increase in how many of those reviews have led to refinancing or other changes, Welch says. He estimates the firm has helped up to 70% of the firm's 200 clients refinance mortgages during the past two years.

"In most of the cases, we are actually on the phone on their behalf, talking to mortgage brokers," he says, adding the firm will compare rates among brokers and try to negotiate for lower rates and fees. "What we have found is that with mortgage bankers, they actually have some wiggle room in terms of their fees."

In one recent example, the firm used a refinancing to help a client-a single 45-year-old female-refinance a $380,000 equity credit line. One of the problems with the credit line was that the interest was not deductible, which the client was unaware of when she took the loan, Welch says. The refinancing put her into a deductible mortgage, and in the process allowed the firm to consolidate $50,000 in credit card debt that she was paying off at a rate of 23%.

"From our perspective, it gives us a chance to add value to the relationship," Welch says. Advisors are finding numerous opportunities to use refinancing as a tool for consolidating debts, or putting equity to use in other parts of a client's financial plan.

Bernard Kiely, president of Kiely Capital Management in Morristown, N.J., had one recent case in which a corporate executive client of his was able to use a refinancing to address another concern: financing his daughter's college education. College savings had been a problem for the client because most of his worth was tied up in his 401(k) and pension plans. Through a refinancing, he was able to pull out $50,000 in equity and start a 529 plan, Kiely says.

Just a straight refinancing that reduces the interest rate by 1% has an impact on a client's overall financial plan, says Andrew Lucas, principal of Lucas Capital Advisors in Manalapan, N.J. "With these interest rates, a client can save $200 or $300 a month," Lucas says. "That's money that can be put toward retirement and education goals ... now it's something we'll review whenever I pick up a new client."

When discussing mortgages with clients, however, some advisors say numbers can sometimes conflict with emotions. Jane Marchand, president of Marchand Faries Financial Management in Jacksonville, Fla., says she's had cases where she's advised clients to remortgage properties that are nearly paid off or paid off completely. These would be cases where the money could be put to use elsewhere, while the client benefits from continued tax deductions and relatively small monthly payments.

Yet she says clients sometimes resist such proposals because many cherish being mortgage-free after up to 30 years of sending out payments. "Emotionally, they want to continue to be debt free," she says. "That's something we're dealing with more and more.