Should your clients consider refinancing their mortgages?
The average rate for conforming 30-year fixed-rate mortgages fell by 10 basis points to 4.09% for the week ending on Tuesday, according to HSH.com, a publisher of mortgage and real estate data, giving clients a window of opportunity to refinance.
Theres an opportunity here for people who didnt refinance when the market hit lows, says Patrick Collins Jr., partner & managing director at the Towson, Md., firm Greenspring. It is going to depend on the client but for someone who is in their home for the foreseeable future then absolutely it makes sense.
However, its not necessarily for everyone. Just because mortgage rates have dropped to the lowest point since June of 2014 doesnt mean every client should be looking to refinance. If youre going to save your client $18 in interest cost a month for the hours of work and headache then I probably wouldnt do it, he says. With changes made to mortgage law, Collins explains that it might not be worth putting the client through the aggravation for a nominal gain.
In times of market stress, domestic and foreign investors tend to sell riskier assets such as stocks and, to a lesser degree, U.S. mortgage-backed securities, according to HSH.com. The surge in demand raises the prices of these bonds trimming the yield. Therefore, the current mortgage rates are influenced by the declining yields.
Some advisors are viewing a refinancing as an opportunity to help secure retirement assets for their homeowner clients. If a client is able to refinance at a lower rate and possibly save them money each month they can take the extra money that they are saving and put towards their IRAs or brokerage accounts without having to change their current lifestyle, says Britt Alan Woods, vice president of Fifth Third Securities in Nashville, Tenn. If a client can take five years or so off of their mortgage that speeds up the process for them to become debt free and have the extra income as well for retirement.
However, a lot of clients dont have to worry about refinancing because they dont even have mortgage anymore. Many of my clients own their home outright, says Brick Sturgeon, vice president of Pinnacle Asset Managing in Nashville, Tenn. And the ones that have mortgages have mostly refinanced to already low rates.
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