Episode 47: The Risks and Rewards of Home Appreciation and Refinancing

ABOUT THIS EPISODE

Refinancing your mortgage, the risk involved in assuming your home will always appreciate in value and some tips regarding the best way to mitigate that risk.

Welcome to the build your life podcast with John Brownie. Build your life as a relaxed and unedited conversation with financial expert John Browning. John's the founder of Guardian Rock Wealth, with offices in Hawaii, Colorado and Illinois. John's also the author of the book build a life, not a portfolio, a guide to your financial future based on your personal values, which you can purchase on Amazon, or stay around to the end of today's show and I'll tell you how to get a freak copy mailed right to your door. I'm Michael Dlan, your host for the next few minutes as we chat with financial expert, business owner and author John Browning. All right, and welcome to another episode of Building Your Life podcast. My name is John Browning and we have given our normal host of a well deserved week off, Mike Delhion, and he is going to be back with us again next week with with our next topic. But today I have with me John Cam's from the CAM's Jenning Group, Jennings Group of compass mortgage. He's a senior loan officer. He's been doing this for seventeen years and I think it's a really important topic that we talked about today is about, you know, what's going on with the refinancing boom. Obviously interest rates have come down of late and also there's there's a bit of a housing boom in some places and a housing bubble maybe bursting in other places. So, John, will let you kind of talk a little bit about maybe give us an idea of where you cover and what you typically typically do as far as refinancings are new buys and again, where you cover, like, what states do you cover and where's most of your business coming from? Sure, thanks for having me, John. So we cover were I joke, we cover all the states that matter. So we we're we're licensed in California, Arizona, Colorado, Texas, pretty much the whole Midwest, so Minnesota, Iowa, Wisconsin, Illinois, Indiana, Michigan, Ohio, and then in the South Tennessee, Georgia and Florida and then so we can help anybody in all of those states and we're growing, so hopefully more, but those are the ones that we can either help anybody with. We're strictly residential, so anybody who's looking to buy or refinance and any of those states we can help. All right. So the only one I didn't hear in there that we're. Where we are is Hawaii, but unfortunately, unfortunately, not in Hawaii, although you visited here recently. Right, yes, and yes, Kawai. Yeah, yeah, so a beautiful place. That's where I'm sitting right now. We also have a guardian. Rock also has offices in Colorado and Chicago, where you're sitting right now, and we're looking to open up possibly another one out on the east coast, you're in the very several months. So we cover. We cover again, as you said, all the states that really that really matter, that matter right. Yeah, exactly. You know, no offense to those are listening from other states, but we just like to joke about that. So tell me, John. You know, one of the things that I talked about a lot on this podcast and also in my book build a life, not a portfolio, is about creating financial flexibility. Sure, right now, given where interest rates are, what would you say is a is one way you could create financial flexibility? Maybe with your mortgage? Well, I would just say that really analyzing and looking, and I know you help people do this, but really, I know from the being a mortgage banker for seventeen years, people really focus hyper focus on their mortgage and and paying their mortgage off off and and not taking everything into consideration from a holistic standpoint. And I see a lot of ...

...people that don't necessarily have enough in retirement but their mortgage is almost paid off and that can be not necessarily the best position to be in. So getting financial advice and getting a financial planner and a mortgage banker that can really look at your situation holistically and and not discount the mortgage because, especially for people just starting out, the mortgage can be thirty six percent of your income. So if you're a young family, just starting out and you're not managing your mortgage and you're not really I guess I use the term using the mortgage potentially as a financial tool to help you reach your short and short and long term financial goals, because what can happen often is that you get into you get you get into paying the mortgage off mode and it's opportunity costs. So your your you choosing every dollar you choose to pay the mortgage off. Not to say that that's a bad place to put it, but it is a it is a dollar you're you're choosing not to put somewhere else and when you manage the mortgage and you can say I've got clients in this environment. I since I've been doing this, rates have gone up and down, but in since, let's just say the last five years, I've got clients that have refinanced multiple times, and the reason why is because they start out, they buy a home and they have a three hundredzero dollar mortgage. Their rate is foreign a quarter, and then they find out six months later, oh my gosh, I can go all the way down to three, six, two, five. Then they find out that, wow, I can go down to three percent. And when you do the numbers on this, yeah, you're technically starting your mortgage over. But what I tell clients is, no matter what you're paying, so it doesn't necessarily matter if if you're what matters this is a how much are you paying at throughout the whole term? And Yeah, if you if I've run into this before with clients with really high interest rates, will all have a twenty year mortgage and they'll say, yeah, John, I don't want to go to a thirty year mortgage again, I'm resetting the clock and I'll say okay, yeah, but you're at foreign a quarter and if I were to refinance you tw two and a half percent in even if you paid it for thirty years, you're still saving Fiftyzeros, even with resetting the clock. So I think really getting a professional who can like yourself, who can holistically analyze your your portfolio and your retirement long term goals and potentially leverage the mortgage because it's an easy way and it can be utilized as a as an awesome financial tool to help you really reach financial security. And I think that that's what people oftentimes mistake is that what is financial security? And people think, well, having my house paid off is financial security. And not to say that that's not financial security, but you're always going to have a payment on the home, you're always going to have to pay taxes, you're always going to have maintenance, you're always going to have insurance. So really financial security to me is how many months can I go without anything coming in? Is what it really comes down to. How many months can I say hey, I've got x amount of dollars coming in and I've got x amount of dollars and going out and with that current structure I can survive for five years because you're always going to have monthly payments. Unfortunately, we're never going to we're never going to come to a time when we go to the mailbox and say, Oh, nothing, I don't have to do anything, it's just all done. So really utilizing and leveraging the mortgage and viewing it as a financial tool and not something that you just in, something that has to be managed. And I I do tell clients you should be looking every year or calling me. Don't view your mortgage banker, your financial planner, is a plumber where you know you what do you do when you...

...have a plumber? You you call them when the pipes first. Where your financial planner and your and your mortgage guy? You should view more as your dentist. You know, you go every six months or every year and have a checkup and we can say hey, you can save a half a point on your interest rate, or you've got a lot of equity and you got, however, you got Fiftyzero in credit card death let's you know, we can consolidate all that and continue to put money into your you know, save. We freed up money to put in your retirement and ultimately help you achieve your long term financial independence goal. Right. Yeah, I can't say that enough. You know, we talked about that a lot too. I like your analogy where it's not like the plumber where you call them fix it and he goes away. You really need to keep an eye on this and with you, both your mortgage and with your entire financial plan, which we encourage people to at least talk to us one supporter, if not more, and at the very minimum, you know, we really need to talk to you semi annually. Yeah, super important, and what I taught you know I have. I talked about magic money making triangles. Right. Yeah, one way to do it. You know, your first point is pay attention. Look at that mortgage, talk to somebody like John Games at complish mortgage, James, the Cams Jennings Group, and find out what's available now, what has changed, and possibly refinance, save some money and then automate. You save some money as the next point of your triangle, and then you automate either your savings or your debt management or something else, because if you can refinance, obviously at what is it now for most people? To two and a half to four degree? I would say yeah, to too, for most people. Call it two and a half to two point seven five percent. Great. So two point seven five percent, you're going to be saving on a large mortgage, you'd be saving hundreds of dollars every single month. Right, correct. You automate that to another place, or you pay off your mortgage faster. To your point, just because you refinance doesn't mean you pay off your mortgage slower. You could add, pay it off faster because it's less interest that you're paying. Yeah, one of the things that we do to that, and I use it more as an as an example, because I'll run into clients to say, well, you know, yeah, I'd have to spend a half hour getting you my pay stubs. W Two's. That could potentially even be an hour. That's fifty bucks a month, seventy five bucks a month, like not really worth it to me. So what I'll do with clients I'll say, okay, great, well, that means that you're going to pay. You're going to pay x amount anyway. So what I'll do is I'll show, hey, okay, let's just assume that you you refinance, you got the lower interest rate, but you continue to pay what you're paying now, because that's the cost of doing nothing. Right. You you're opting to say out well, I'll just continue to pay my mortgage, and then what they'll see is that, wow, like saving fifty dollars a month over that thirty year period is thousands and thousands of dollars. So and you know, and also showing them that you know if you did, if you were to continue to make the same payment that you're making now and refinance, you'd actually shave what five years off the mortgage, and that's really where the savings comes in. So but again, I really do I like to use as an example, but I think that what you the best way to really do it is to do both, but also talk instead of just saying, oh well, I'll just continue to pay the same on my mortgage. Just talk to somebody like you, because if you're saving a hundred bucks, odds are there's probably be a better place to put it than your mortgage. So right then, paying down the mortgage. So that's right. And you know, I always like to make the point during this podcast this is not personal financial advice. We got to have it, we got to have a conversation and I love to do that. You can just go to Guardian and rock wealthcom go to the contact us and schedule a meeting up with us. We're happy to do that and we can get in touch with John as well and he can be part of that conversation, because John's the...

...expert. You know, where the expert on some things. John's the real expert as far as mortgages, refinancings and all of that in the laws, regulations and getting you approved all of that type of things. So again, not personal financial advice on this podcast and of course never is past performance of guarantee of future results, but this is these are things to think about and how to gain some financial flexibility and maybe there's a better place to invest your money that you're saving on a reeflinance in. Maybe it's the markets, but it depends. It's very personal. Depends on what your personal situation is. But so, speaking of personal situation, John, I know one of the things we touch atted about before we got on this podcast was when is like, generally speaking, in somebody's life, when is the best time to buy? When you do you buy a house? Yeah, so I'm a little different in regards that. Most Plate, most most mortgage bankers are realtors, are going to tell you. I've now now is the best right. It's always a great time to buy and I really view it from a risk standpoint, and the way that I view it is that if you're it, and I'm sure you can echo my sentiments here, that when you invest, you you plan for the worst and you hope for the best. And so I believe that when you buy a home, most, I would say we all, buy a home. Nobody wants to buy a home and find out that it went down in value. Okay, but reality is that when you buy a home, your home is going to go up and down in value a lot throughout owning it. The differences. You don't get a statement every month telling you that it went up or down. Right. So, that being said, I think a good, easy rule of thumb, the best time to buy is when you are confident or you can plan to hold it for ten years, because for ten years you can ride out any typically any blip in the market. So I bought my first Condo in Oh for and when I bought my condo and Oh for, the it was right. It wasn't at like the height of the market, but call it you know, probably the worst time to buy before the great recession was call it. Oh, six hundred seven was the worst time to buy. So but oh, for after the great recession there was a my property went down in value, but it's the same as a stock. You don't technically lose until you sell it. So I didn't end up selling it until two thousand and eighteen. So I wrote out the storm. I was able to sell it, I was able to not be upside down on it. But it's like any investing, even though, like I said, most people I don't think you should. I think that when you buy a home it should be really hey, I it's better than payin rent. It's not necessarily in investment per se. If I end up making money on it, great, but it is not my nest egg, if or at least not not. Not putting all your eggs in that basket. So if you can plan to live in it for ten years, then you should be able to ride out any storm. But it's the same as most investing. The shorter of the term, the higher the risk. So if you said, Hey, I want to buy a home, but I'm pretty sure I'm going to want to move to California in two thousand and twenty three, well, that's going to be much more. It's going to be a much riskier for you to and to sell that, to sell a property and realize a gain on it. So the shorter the term, the higher the risk, which ultimately could be a bad situation for you. So I just keep it simple with that and say, Hey, if you're pretty sure that you're not going to move for the next ten years and you're up for you know, hey, I want to get a house that I'm going to live in for ten years and at least again, prepare for the worst but hope to the best. So have a strategy, if you...

...say, and at least knowing the risks right, because some people say, well, I'm going to move to California, but I still want to buy anyway. Okay, well, that's fine, but what you should do is make sure that you can have a backup plan so that if you can't sell the house you're in, can you rent it? I live in Chicago. One of the big things I tell people you're going to buy a Condo, so can you rent the condo out? Well, renting a condo out is not necessarily you just go and rent it out because you feel like you want to do it. Condos are going to you got to check your by laws. You gotta there some condos are going to have restrictions on whether you can rent it. So now, if you don't have good a good advisor or somebody who tells you, you know, you got a real turn alloways as every time. So the best time to buy? Well, you know you going buy a Condo, decide you want to move in three years, there's a real estate crash and the CONDO's not worth what you paid for it and then you find out that, oh, not only can you not sell it by laws at state, you can't even rent it. So now you really have a problem. So I would just say, but again, all these problems are usually going to be alleviated by holding for ten years. So I would say if you're if you're currently renting and you're pretty sure that you're not going to be you're going to be where you're at for the next ten years. Is a easy rule of thumb to say absolutely you should buy. Yeah, and and another thing we often talk about that goes right dovetails right into what you're seeing is that sometimes, without realizing it, again, it goes your real estate value goes up and down, maybe even every month, but certainly from year to year and six months to six months. But you just don't get that statement reminding you of that. Yeah, and a lot of times what happens without really realizing it people get overweighted in their total, total ownership of things to real estate because you're utilizing your house. You don't think of it necessarily as an investment, but it's where a lot of your money is and of course it's, generally speaking, one of the better ways to leverage that. Yeah, as you can get, essentially, if you do the math on all this, with the mortgage interest right off, which you still get up to a certain amount, and then you figure out your tax right off that you get. I mean at the rates now, it's almost it's almost free money, right. Yeah, so it's it's a really interesting time to buy. But keep in mind, right to your point, like I know you had mentioned earlier when we were chatting just just the two of us, that it all depends on location. Like it wasn't too long ago where there was this boom in, say, downtown Chicago and downtown San Francisco and and prices, you know, just went through the through the moon. Well, suddenly, within the last what, six, eight months, Guy, we've seen a complete reversal of that. Yeah, who would have called that? Yeah, so now, I mean you can speak to a better than I do, but but are what are we seeing right now as far as where's the boom? Where's the bust? Where's the demand for for Houser? Just as a curiosity? Yeah, so I would say that it's there's definitely been and you can read in cranes, I believe had an article about like these highly urban I guess, for you know, like downtown Chicago, like front and center, the loop, where you have these ti rises, that there's there's there's a pandemic, right, who could have ever said that there's going to be two three years ago, when the property values in San Franciscuar skyrocketing, who would have said that? Oh well, what about if there's some crazy pandemic from China that comes in and and decimates real estate? Well, that's what happened. So you basically have an instance in a lot of these densitly urban areas, especially Chicago, where the the these people that were living there were living there because, hey, my office is right down...

...the street. There's all these attractions. There's yeah, I I have limited space, but I'm never really home anyway. Well, now those people are home all the time, they don't go to the office, the working from home. There have a kid and there and then all a lot of these attractions are gone now. So again, I think looking and I was speaking with a realtor friend of mine and I was he brought up a good point because I was like wow, you know, like I think a lot of people, and again it's just the the the power of having a good advisor. Is that a lot of people, and I've made the mistake of you know, you read the National News and you say, wow, s and p five or s ANDP home index or whatever it is, is up five point two percent, like real estate's great and well, yeah, nationally, on the national average real estates performed pretty well, but that doesn't necessarily translate to your local market, and that's what's really going to affect you. Right. It doesn't necessarily matter what the national averages if you're downtown and your property values gone down twenty percent. So I would just say that. Now, that being said, the general market, just because interest rates are so low, you definitely have a lot of people that are coming out of the woodwork that are just like wow, like it's getting to the point where it's just so cheap to buy right now that you know when you're not like in these like outlier areas like downtown, where people are getting out, like you get into like, you know, more normal areas than aren't part of those outliers. It's the real estate market is very it's hot right now and there's multiple office situations. There's not enough inventory, is what we're experiencing. So, yeah, it's a it's a great market to buy, I think, especially again because my philosophy is, Hey, ten years, you're going to live in there for ten years. Right. So if nobody wants to buy at the top of a bubble, but we nobody knows what the top is, right, we're never going to be able to time the market and anybody who tells you that they that they can is lying. So you know, it's more like, Hey, you got to hop in and have a long term I tell clients this all the time. It's a long term investment. This is not a hey, I'm going to get in there flip the home and and and for most people right, and the people that it is truly like a truly like flip investment. Those people typically are doing it with cash. They're not coming to me and saying, Hey, I got to get a mortgage on it. So but yeah, I would say just in general, the the market, just with rates where they're at and there's been a lot of pent up demand. I think your you finally have people that again, we're potentially living downtown in the small place that we're renting and we're happy, and they said, Oh, I'm gonna, I can, I can rent and go travel. And well, guess what? This pandemic is pretty much nobody wants to travel anymore. Nobody wants to necessarily be in a densely populated area. So you have those people that are finally being like Hey, I'm going to go buy a home, especially like the the I've been doing this long enough that you know that we've been saying like well, where are the millennials? Where are the millennials, like for the past ten years, like these millennials are going to buy, and it's been like well, when? Well, they're buying. It's finally here, I think, and it's a good thing. But just you know, it's definitely a competitive it is is a seller's market right now, and especially if it's in in a in a good area. So yeah, yeah, and and that's like. I love what you said about time in the market, because I say that all the time. There's so many, especially these days, so many advertisements to say and you make fifteen hundred out of the month by doing this trading strategy, or or we can, you can make you know, thousand percent, and then in a little fine print you find out number one, they're not licensedward to number two, the results are not typical. They're definitely not typical.

No one can time the housing market. No one can time the equity market. Nobody can do that with any red degree of regularity. Sure there's people that this can advertise. Hey, you know what, I invested in an apple when it was fifty cents this year. Well, you know what, actually, I could. I could say that too. You know, I invested in an apple early on, but that doesn't make me anything special. A lot of people did that. You, you are what we call lucky. Exactly, exactly, and it was part of an overall investing up night. So so having that plan and part of your plan is your mortgage and how you utilize that mortgage and the financial flexibility that you can create with that. So, John, it's been fantastic having you on the podcast. Thank you for having me. Really appreciate it. This is some great information and if everybody knows how they can get in touch with me. Right it's guardian rock wealthcom and the contact US page Jay Browning at advocacy investing, if you want to contact me directly over the email and John, how is the best way for them to contact you directly and of course you can always come through me. I'll get you in touch. But yeah, for sure way. Yeah, so you can call or text at zero two. It's a team line, so somebody will always answer or text to it, but it's for zero two, eight hundred and eighty two loane or five six to six, and then you can also email at k as in Kelly J group, Kjg at comp see us and Charlie as an, Olive Amazon, Mary Peas and Paul Mort Amazon, Mary Os an olive peas and Paul Tea. Isn't Tomcom. So kjg at COMP MARKCOM. All right, great. Well, yeah, thanks a lot for being on the call. I know he took some VI the time, time out of your schedule to do that and everybody have a great week and we'll be back with our next podcast next week on the building your life podcast with John Browning and Guardian Rockwell, money really is a big part of our lives and John Browning can help you and your family learn how to keep money in the proper perspective. It's important, but it's only a tool that could help you build the life that you want. If you like John Emil, you a free copy of his book build a life, not a portfolio. Go to John's website, Guardian rockwealthcom, and click the contact US link and send your request. John Will Mell a copy of his book right to your door absolutely free. Thanks for listening to building your life podcast with John Browning. Be Sure to subscribe to this podcast so each new episode will be sent to you automagically when it's released. Have a terrific day.

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