General Financial Planning

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Women & Investing: How to get more Engaged with Finances

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How does a busy, multi-tasking woman make sure the important financial stuff does not get missed? A statistic in a 2015 Fidelity Investments study recently caught my attention.  According to the study:

83% of women would like to become more engaged with their finances within the next year. 

Working with women over the last 20 years has taught me that the first step is usually the most difficult.  Once the decision is made to pull a financial plan together, the pieces start to fall nicely into place. But getting over that initial hurdle of getting started can seem daunting.

Here is some practical advice to get you started:

  • Give your personal financial life the attention that is needed. If you feel like life is whizzing by, take time to step back and ask, “Am I on the right track?”

  • Start creating a mental picture of your goals. You probably have at least a vague picture in your head of what you want in the future.  The beauty of the financial planning process is that it makes conversations happen especially with the help of a financial planner who serves as a thinking partner.

  • Pull a team together.  Your financial planner, tax preparer and attorney can help you keep your arms around the different aspects of your financial plan. They’ll also help you make important course corrections when necessary and chart the progress as you go.

Practical advice to keep you on track:

  • Continue to ask questions. Financial planning means asking, “Where do I want to be in 3 years?, 10 years?, 20 years?” This may change as you go along.

  • Stick to your plan.  Good financial habits are a foundation you can build on for a lifetime.

  • Stay focused on your priorities. A good plan will help you remind yourself what is most important in your life and decide how your financial resources can help you get there. 

The future is not the finish line; it is just the beginning if you have the resources to lead the life you want.  Is there a better reason to become more engaged with your finances and put your plan together? 

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Laurie Renchik and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected.

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Green Money: Tracking the Socially Responsible Investing Trend

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The concept of using investment dollars to support environmental and societal initiatives is not a new idea.  For decades socially responsible investing, also called SRI, has been recognized as a broad investment category spurred on by religious values, social movements and concerns about health and the environment. Today the SRI landscape is changing.  There are new strategies that fall under the responsible investing umbrella with differing objectives, more exposure to a wider range of asset classes and a growing number of investment dollars being put to work.  This is good news for investors who have personal and financial goals to incorporate responsible investment strategies into their portfolios.

Navigating this emerging landscape is nuanced because there is no single term that describes the multiple approaches evolving from the original concept of responsible investing. Socially responsible investing (SRI), ESG investing (environmental, social and governance) and Impact investing make up three main categories. There are some distinct differences between the three.

At the most basic level, here are the philosophical guideposts:

SRI Investing:  Creating a portfolio that attempts to avoid investments in certain stocks or industries through negative screening according to defined ethical guidelines.

ESG Investing:  Integrating environmental, social and governance factors into fundamental investment analysis to the extent they are material to investment performance.

Impact Investing:  Investing in projects or companies with the express goal of effecting mission-related social or environmental change.

What does responsible investing mean to you? 

Incorporating responsible investment strategies into your portfolio is not a one-size-fits-all solution.  Your goals are specific to you and your objectives for the future.  Talk with your financial planner to better understand the opportunities available today to integrate responsible investment strategies in your portfolio.    

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Laurie Renchik and not necessarily those of Raymond James. Investing involves risk and investors may incur a profit or a loss. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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Part 6: A Year of Lessons on Money Matters for your Children and Grandchildren

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Contributed by: Matthew E. Chope, CFP® Matt Chope

When it comes to keeping track of finances, my advice for the young is to keep it simple and straightforward and get qualified help if needed. That starts by finding a way to track your money without making it an obsession. Begin by tracking your finances at least once a month.  To do this, simply add up what’s coming in and then look at where it’s going. Once you’ve established that you are indeed living within your means, it is time to establish two kinds of savings accounts that you contribute to each month:

1. Build a “Save to Spend” account

2. Build a long-term financial security account (i.e. 401k or IRA)    

The Save to Spend account is where you park money for the short term to be spent on things that lead you toward the 100 things you want to accomplish in life (read this blog if you don’t have your 100 things list yet).  The long-term security account is for financial independence, which will eventually allow you to work because you want to not because you have to.

Investing does not need to be overly complicated either. For some good reading to help you build knowledge about investing, here are a few books I recommend:

Once you understand the basic principles -- like diversification, pay yourself first, don’t miss a match, maximizing deductions and credits, and dollar costs averaging -- and if you have the interest to follow those principles, then do it on your own but keep it simple.  Remember to review my previous blog about using time to your advantage (start early – start now!). It might make sense though, to consider getting qualified help managing your money, especially if this is something you’re not interested in doing. If you’re looking for help, here are 7 key components to help you find the right person.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Matthew Chope, CFP® and not necessarily those of Raymond James. Investing involves risk and investors may incur a profit or a loss.

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Reaching the Right Amount at my “Plan End”

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Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

You’ve probably heard someone (morbidly) joke, “When I die, I want my last check to bounce.”  For some, spending your last dollar on your last day would be considered a success. However, in the world of financial planning, we would consider it playing with fire.  This mantra might seem like the ideal situation in a perfect world, but the reality is simple – we do not live in a perfect world!  I believe having “excess” at the end of your financial plan is a product of thoughtful, prudent planning by the client and advisor.

The goal of the vast majority of our clients is simple: Don’t run out of money in retirement.  So how do we help clients make that happen?  When building a new plan or updating a client’s existing retirement analysis, we use a combination of sophisticated technology and good, old-fashioned human knowledge and expertise.  When you put the two together and have a client who is realistic with their goals, it’s typically a recipe for success. 

Tapping into Technology

Our financial planning software takes a look at many different factors (age, life expectancy, income, savings rate, retirement income sources, portfolio value and allocation, etc.) when testing the probability of success of the sustainability of a client’s financial plan.  As with anything, there has to be a balance.  We see some who are spending far too much in retirement and the software puts up red flags. We also have some families who live well below their means in retirement and could actually spend a lot more than they do.  The key, as with anything in life, is finding the appropriate balance. 

Can’t We Spend More?

When I’m walking a client through their retirement analysis, looking at a plan we consider to be in good shape, they often get a perplexed look. It happens when they see an estimate of the value of their investable assets at age 95 or “plan end”.  For example, I recently met with a couple in their early sixties. At age 95 (in the year 2048!) they had an estimated $1.2M left at their “plan end”.  The couple had a goal to spend approximately $70,000/yr in retirement (including Social Security) and had a child who they felt did not need the $1.2M the software program was telling them they would have left upon death.  However, when we dug into the numbers, we showed them that the $1.2M in 2048 (33 years from now) is really the equivalent of just over $450,000 in today’s dollars if we factor in the negative effect inflation (3% assumption) has over your purchasing power.  However, in their minds, it was still a good chunk of change to leave as an inheritance.  They were still stuck on that $1.2M – couldn’t they spend more?!  While this was an extremely fair and logical question, my answer was yes. But next I explained that the likelihood of having to adjust their current spending habits downward at some point in the future would increase.  The reason for this is because we want your plan to have a “cushion” or “buffer zone” for the unknowns we haven’t fully factored into your plan.  Things like unexpected medical events, long-term care needs, helping out family, extended periods of negative market returns, etc. can all eat into that “cushion” or “buffer zone” pretty quickly even though on paper, it looks like a large amount today. 

The bottom line is this – financial planning is an ongoing process.  Meeting annually, tracking progress, making adjustments when necessary and being consistent is planning done right. This approach has helped thousands of our clients feel confident during their 20+ years after working. While spending your last dollar on your last day might seem like the Holy Grail, it isn’t something we strive to do for our clients.  Life is full of unknowns. That is why we plan and work together with you to make sure when those unknowns eventually do occur, you will be properly prepared.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Any examples provided in this material are for illustrative purposes only. Actual investor results will vary.

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Gas Prices Went Down But Where Did the Money Go?

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Contributed by: Angela Palacios, CFP® Angela Palacios

After oil and thus gas prices sharply declined late in 2014, many were expecting consumers to run right out and spend what they’d saved.  What has surpised everyone is that isn’t happening.  The chart below shows the direct correlation between the decrease in what consumers are spending at the pump (the light blue line) and the increase in their savings account dollars (the dark blue line).  As consumers are spending less, they are saving more.

There are a number of reasons contributing to these increased savings rather than spending:

  • Most did not expect the temporary reprieve in gas prices to last

  • Prices of many other goods are perceived to be increasing

  • People are starting to recognize the importance of having a few months of living expenses set aside in the bank as a safety cushion

While all of these are probably contributing factors causing this “savings” to not be spent, I would hope the main reason for the pattern is the last bullet point -- people recognizing the importance of having some money set aside for a rainy day!

Angela Palacios, CFP® is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Angela Palacios, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

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Part 5 – A Year of Lessons on Money Matters for your Children and Grandchildren Contributed by Matthew Chope

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Contributed by: Matthew E. Chope, CFP® Matt Chope

If you know where you’re headed, then you have a better chance of getting there.  This applies in money matters and in life. To help you chart your course, try making a list of the top 100 things you want to accomplish in your life.  The idea here is that if you know what you want to accomplish and what’s important to you, it might help you start on the path that will get you there.

Finance Your Goals

Along that path, I don’t think you should be concerned about spending money, especially if it’s towards these 100 things.  This is what money was meant for.  Money is not an end, but a means to an end.  Part of your money is a temporary store of value to be used towards the goals in your life.

Do you think you could become president if you don’t intentionally set that goal? In my own life, I’ve seen how writing down my goals has helped me find the path to achieving them since I already know the end. Writing down goals will also help you invest in things that will lead them toward that end. You’ll be able to make choices differently than someone who has not considered what’s important to accomplish in life.  Feel comfortable spending money alone this path.  This is what is important to you.

Focus on What Matters

I think Oliver Wendell Holmes said it best:

“Most of us go to our grave with our music still inside us.” 

I have seen many clients get to the end of their lives with much of the music still buried within them.  Their time was spent focused on saving money to build wealth for financial independence.  Or they felt that money should not be used unless necessary.  Financial independence is very important, but so is finding a balance to pursue your interests along the way. 

If you don’t have a list of your own, maybe you’ll get inspired by mine. I started this list in my early 20s and have tweaked it over the years. Here are some of my goals:

Fun – Travel

  • Paint a beautiful picture

  • Swim with a dolphin

Generosity – Giving

  • Be someone’s mentor

  • Make it possible for my niece to go to college

 Education

  • Achieve Master’s degree

  • Give many motivational and inspiring speeches

Personal Achievement

  • Own a home in a warm sunny climate to escape the winter gray

  • Practice meditation and yoga daily

Professional Life – Career

  • Contribute to a healthy financial planning practice for 40 years

  • Help 1,000’s of people reach their financial objectives in life

Family

  • Earn the right to marry someone special.

  • Visit my grandparents and find out about their life as much as possible

Health / Fitness

  • To practice meditation and yoga daily

  • Exercise with a trainer every month to stay doing things correctly

Financial – Monetarily

  • To never be a burden to anyone else

  • To be financial independent by age 60

Maybe some of these categories or ideas will spark you to start your own list. I believe when you choose something (make a decision) you should put your full potential behind it. But remember nothing is set in stone. My list has evolved since I started it. After a good try, be open to changing your mind. 

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any opinions are those of Matthew Chope, CFP® and not necessarily those of Raymond James.

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Should Ford Employees Contribute After-Tax Money to a 401k?

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Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

Earlier this month, my colleague, Matt Trujillo and I hosted a webinar for Ford Motor employees to discuss the potential benefits of contributing after-tax dollars to their 401k plan.  These Ford workers are not alone. About 25% of companies offer retirement plans with after-tax contributions that are completely separate from the plan’s Traditional 401k or Roth 401k (Columbia Management). Recent IRS rulings have made contributing to the after-tax component far more attractive because, once an eligible distribution event is met, the dollars can be rolled over to a Roth IRA for tax-free growth.  Most employees aren’t even aware their plan offers after-tax contributions and, if they do, there is typically confusion around how it works and if it makes sense for them.

Do After-tax Contributions Make Sense for Me?

In most cases, the after-tax portion is the best fit for someone who is currently maximizing their pre-tax/Traditional 401k but who still has the capacity to save more for retirement.  As mentioned before, the after-tax contribution is a separate contribution type and is above and beyond the normal 401k limits ($18,000 in 2015, $24,000 if over the age of 50 however, subject to the overall $53,000 plan limit).  It is really all about making “excess savings” as efficient as possible.  Tax-free accounts are about as efficient as they come and can potentially save an individual or family hundreds of thousands of dollars in retirement.  For more information, this blog by Tim Wyman goes into greater detail on contributing after-tax dollars into your plan.

Every 401k plan is different and they all have their nuances.  This is why we’ll be hosting company-specific webinars in the coming months to review how the after-tax component works in specific plans and to go over the pros and cons. This kind of information can help you decide if an after-tax plan makes sense for you.  Keep your eyes open for e-mails, blogs, and more on our Facebook, Twitter, and LinkedIn pages for updates on webinars we will be hosting in the near future!

As always, if you have specific questions relating to your company retirement plan, never hesitate to reach out to us. We are here to help! 

Unless certain criteria are met, employees must be 59½ or older and must have satisfied the five-year period that starts with the year the employee makes his or her first Roth contribution to the 401k plan before tax-free withdrawals are permitted.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and investors may incur a profit or a loss. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters.  

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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The Truth You Need to Hear: The value of a Dutch Uncle

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Contributed by: Timothy Wyman, CFP®, JD Tim Wyman

Recently, during a preliminary meeting with a new client, he told us that what he really wants us to be is his Dutch Uncle.  I vaguely recalled hearing the term before, but I asked him to clarify -- just to be sure we were on the same page.  The gentleman, in his 70’s, shared that what he really valued most was to work with someone who would give him frank advice, challenge his assumptions on some important financial issues he was wrestling with, and tell him what he needed to hear rather than what he wanted to hear – and do it with compassion. 

The interaction left quite an impression on me. I am glad that I asked for clarification, because if I would have just waited to Google “Dutch Uncle” after the meeting, I may have only seen definitions that address, “frank, harsh, blunt, stern and severe.” I might have missed out on the “with compassion” part; which is very important.

Frank, Candid & Compassionate

A few years ago I read “The Last Lecture” by Randy Pausch.  First, if you haven’t read it, get a copy now. Along with a box of tissue. Second, if you have teenage or adult children, get them a copy too. Third, if you’d rather watch the video, it’s here on YouTube with over 17 million views. You won’t be disappointed. Randy was a professor at Carnegie Mellon University in Pennsylvania. After being diagnosed with pancreatic cancer, he gave his last lecture titled “Really Achieving Your Childhood Dreams.” That was on September 18, 2007. He passed away on July 25, 2008. One of Randy Pausch’s experiences included a man he referred to as his Dutch Uncle. One day, this Uncle took him for a walk to share the truth that he needed to hear (that Randy’s arrogance was getting in the way of his long term success) in a frank, candid and compassionate way and it became a turning point in Randy’s life.

Sales vs. Advice

The Dutch Uncle analogy can also be used to illustrate the difference between sales and advice -- or perhaps, those acting in your best interest and those that do not.  An advisor, or someone interested in your wellbeing, will provide candid and frank feedback; because they want to see you succeed.  In my profession and from my perspective, this is the true litmus test of an advisor: Are you willing to lose a client relationship because you act as their Dutch Uncle (compassion included)?  If you are worried about losing a client because they might not like what you have to provide, share or recommend in your learned professional opinion; then you are really acting in a sales capacity and not an advisory role. Which is fine, just don’t refer to yourself as an advisor.

Nowhere is there a need more for a Dutch Uncle than in financial planning and investment management. Our brains, frankly, are wired to make the easy or wrong decision too many times.  Here’s one familiar example: Buy low and sell high.  But how difficult is this mantra to follow?  Studies suggest it’s extremely difficult. Can you think about what you were feeling and hopefully not implementing in March 2009 during the Great Recession? I bet a Dutch Uncle was pretty valuable.  Or, how about the question can I retire now? Sometimes the correct feedback is you are ready to retire – unfortunately your money isn’t!  A Dutch Uncle might suggest some tradeoffs such as continuing to work but at reduced hours, trading time for income. A Dutch Uncle might also say, sure, go buy X and accumulate additional debt; but also acknowledge that this action will have an impact on your financial independence.  It’s still your choice, but the funds need to come from somewhere.

If you don’t have a Dutch Uncle perhaps it’s time to seek one out – your success might just depend upon it.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a contributor to national media and publications such as Forbes and The Wall Street Journal and has appeared on Good Morning America Weekend Edition and WDIV Channel 4. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), mentored many CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Timothy Wyman, CFP® and not necessarily those of Raymond James.

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Volatility and Commodities (go together like a horse and carriage)

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Contributed by: Matt Trujillo, CFP® Matt Trujillo

There has been a lot of press lately about the recent volatility in the crude oil markets.  Every smart person with a microphone is making predictions about how low it could go or where it ultimately might end up. I can’t open a financial website, magazine, or journal without seeing some sort of headline declaring that Oil is going to $10 a barrel!

All of this sensationalism would lead one to believe that this price behavior is something unusual for commodities and oil specifically. It’s a constant reminder how short sighted the media is and why it’s best not to make financial decisions solely based on what you hear on CNBC or Yahoo Finance.

Historical Perspective on Commodities

In fact, try going back over the last 100 years and study not just oil, but all commodities. You’ll see that large double-digit gains and large double-digit losses are quite common and almost expected in these types of markets.  If you have that kind of time (and that level of interest) click here to browse through all the various commodity prices and historical price data.

For those of you that don’t have that kind of time, let’s focus mainly on the last 10 years.  For illustrative purposes, we’ll use the annual performance data found here. This interactive chart shows the historical pricing performance for oil as well as several other commodities over the last 10 years. Using this data, let’s say I invested a hypothetical $10,000, and earned the returns illustrated on the chart. My original $10,000 would have grown to $12,351 after 2014.  This is equivalent to roughly a 2.3% average annual rate of return.  Not really anything to get overly excited about, but the path to get that 2.3% was quite dramatic. A few notable years: 2005: +40.48%, 2007: +57.22%, 2008: -53.53%, 2009: +77.94%, and 2014: -45.58%.  Quite the volatile rollercoaster ride…especially if you end up with a paltry 2.3% for enduring all of the swings!

As you can see, when it comes to Oil price volatility is nothing new. Commodity markets are not for the faint of heart and might make sense as a part of a well-diversified portfolio. If you are considering adding oil or any other commodity to your overall investment plan, please talk to a qualified professional first to make sure that it is a suitable investment for your risk tolerance and time horizon.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Matthew Trujillo, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Past performance may not be indicative of future results. Hypothetical example provided in this article is for illustrative purposes only. Actual investor results will vary.Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

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How to Know if It’s Time to Refinance Your Home

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Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

FIVE years ago we all heard that, “Interest rates won’t be this low for long!” Maybe someone told you to, “Hurry now!” to purchase or re-finance a home?  Well, fast forward to 2015 and 30 year mortgages are hovering at about 4% depending on your credit score, slightly lower than what there were back in early 2010.  It’s pretty incredible to think how long we’ve had such a favorable interest rate environment for homeowners.  Rates have come down even more since the beginning of this year and we’re hearing about the drop more and more in the media.  If you’re thinking about re-financing your home, below are a few items to consider before going through the process:

How long will you be in the home if you’re planning on re-financing? 

Sure, lowering your rate is great, but will you be in the home long enough for the interest savings to justify the closing costs of the loan (typically around $2,000 – $3,000)?  The typical rule of thumb is about 3 years, so if you plan on moving a year after you re-finance, it most likely makes sense not to make any changes.  

Just like investing – don’t try to “time” interest rate changes

Rates can fluctuate dramatically in a short period of time. Over the last few years we have seen a great deal of volatility in mortgage rates.  I believe a 30 year mortgage around 4% is a phenomenal borrowing rate, don’t get greedy and try to hold out to save .25% because you think you know what direction rates are going.  We’ve seen this happen before and rates have increased and clients have missed opportunities to lock in historically low mortgage rates.   

Consider combining into one mortgage

Many folks have two mortgages on their home.  The primary is typically the initial mortgage they took out when they bought the house and the second is often times a home equity loan or home equity line of credit.  I recently met with a couple who was paying almost 5% for their primary loan amount and almost 7% for the home equity loan!  My eyes got big when I saw these figures because I knew immediately this was a planning opportunity for them. They had no plans to move in the near future.  The couple was able to re-finance into one, fixed rate mortgage and they should save thousands in interest. Plus they should pay their home off about 3 years sooner than they would have with their prior mortgages.    

Think you’re still “underwater”?  Think again…

Coming out of the recession, many homeowners were unable to re-finance because their home was “underwater” – meaning what they owed exceeded their value.  Although there were some federal programs that helped these types of individuals, not everyone fit the mold depending on loan guidelines. Some folks are just now seeing their home values exceed their loan balances.  Home prices have risen quite a bit in most areas and you might be surprised at what your home is actually valued at now.  Don’t just assume you can’t re-finance because of your perceived loan to value ratio.  Reach out to your loan provider and get their take and see what your options are.

We always encourage clients to keep us in the loop when deciding to go through with a refinance.  We can be the second set of eyes to make sure, first and foremost, that your needs are being put first and that your personal situation and goals are taken into account when making these big financial decisions.  Please don’t ever hesitate to reach out to us if you’d like to run the numbers past us! 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s Money Centered and Center Connections blogs.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. You should discuss any tax or legal matters with the appropriate professional.

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