Mortgage Matters: Rates, Refinancing, and Smart Strategies for Today’s Market

0:00 We haven't talked about mortgages in a while. So today we've got an expert to join us, Donna McEwen. And we're going to hear about current rates and things you need to be thinking about in this mortgage environment. Stay with us for this episode of Something More. Welcome to Something More with Chris Boyd. Chris Boyd is a certified financial planner, practitioner, and senior vice president and financial advisor at Wealth Enhancement Group, one of the nation's largest registered investment advisors. We call it Something More because we'd like to talk not only about those important dollar and cents issues, but also the quality of life issues that make the money matters matter. Here he is, your fulfillment facilitator, your partner in prosperity, advising clients on Cape Cod and across the country.

0:46 Here's your host, Jay Christopher Boyd. Welcome and thanks for being with us for another episode of Something More with Chris Boyd. We've got a whole host of people with us today. I've got Jeff Perry, of course, and Russ Ball, both from the AMR team at Wealth Enhancement. And our special guest today is Donna McEwen. She is a senior loan officer with Movement Mortgage, and you can find Donna easily on the web by mortgagesbydonna.com. Very memorable, easy to find. Donna, it's great to have you back and good to talk to you again. Same. Great to be here. I, uh, I thought we would start by talking about, um, the interest rate environment and, um, you know, it seemed like for a decade we were like, oh, these mortgages are so low.

1:37 They're going to come up at some point, you know, and then suddenly 2022 happened. Everything changed, but, uh, we're not at those highs today. Where are we in the scheme of, uh, mortgage rates and maybe give us some perspective relative to long-term numbers, because we had, we kind of got spoiled in that, um, after the financial crisis with mortgages perpetually so low. But where we're at is it seems like it's pretty much in line with long-term averages and numbers. It doesn't seem at all unreasonable.

2:18 It's just, we've been spoiled for so long. Am I right? I would agree. I think, um, everybody out there, particularly the young people who've never had a chance to have normal rates, you tell them an interest rate and they're like, oh my gosh, it's so high. It's so high. Well, cause we were at, in the twos and threes and that was really just not realistic, but, um, yeah, in the last few years, we went all the way up into the eights and, um, now I would say we are 30 year fixed is high fives, low sixes. Um, 15 year fixed is a little bit lower than that.

3:00 So I don't know, it feels kind of like we're approaching what we would have called normal over the last decade. You know, we get, we get little blips where we drop down and, you know, like I would say about a year and a couple of months ago, we had a little rush and. I refined a bunch of people from seven and a half to 8% down to 5.625. That was phenomenal saving a lot of money every month. Um, but it was very short lived. Um, and that was right after the election, right before the election. And then rates kind of froze and started going up. So, um, we just had another little run like that where we're back into the fives, but I'd say more around like 5.875, 5.99. So hovering right around there right now.

3:49 Not bad at all. I don't think. No, I think, um, you know, we got to keep perspective about like long-term, you know, perspective on this. So we have had the benefit of low interest rates, uh, for a time, but. Um, you know, the five and six and, you know, that range is still really appealing in the scheme of what's where we've been over the years and what's been normal. Um, it still sounds, I mean, it's, you know, maybe it's, it's easy for me to say, cause I'm still sitting on my lower mortgage, you know, but, um, you know, I remember starting out with my first home and thinking five and 6%, five was like a dream, you know, get it.

4:36 But 6% was kind of the norm, you know, maybe even a little higher. And, um, so it's, it feels just like we've kind of returned to that norm and people who are a little older than I am will tell me constantly about their first home and those 11% and you know, we didn't, it was just what it was. We didn't know any better. And so we still would have bought the house if, you know, I hadn't been whatever, but that was normal then. But your point, I think the biggest point in all this is like this generation who's like Russ, who's coming into this mortgage buying time of their life. Um, they think 3% is the normal rate.

5:18 And so, and I think that's caused some hesitancy. Has it, you think Russ like, Oh, we're going to wait until it goes back down there. Absolutely. No, I was just thinking going Russ. It's not too bad for me, but, um, no, I think, I think that's pretty much it. It's like everyone is looking at the, it's like, Oh, well, of course they're going to go back down to, you know, two, three, whatever it might be. But that's because, you know, most of my adult life, or at least as long as I've been aware of, of mortgage rates, uh, they've been extremely low up until, you know, uh, last couple of years. So, uh, I think there is sort of this underlying expectation.

5:58 Like, Oh, well, well, rates are so high right now that they're obviously going to come down. So, um, you know, people, I know I've, I've some friends who are like, you know, when should I think about refinancing? Like, uh, should, like, is it like, I should probably wait until it goes down to at least two, three or something like that's where I was going to in terms of that, that's, I think it's a really great, uh, setup for us in terms of questioning for Donna. How does one approach this question of when's the right time to evaluate a refinance? Is it driven by the amount of change in interest? Is it a term, like how long has passed? Um, is it, is it ever too soon to think about refinancing?

6:38 Cause we don't know what the future holds. Will rates be higher or lower? Right. Um, but, um, how do you assess that? When do you approach people and say, Hey, you know, it might, might make you, is it driven by a change in rate? Well, it depends. I mean, there are a lot of reasons for doing a refinance rate. Isn't the only one. Sometimes people need to get cash out. Sometimes they, there's, there's a lot of things that drive it. They might be getting divorced and they need to refi. Think things are other things that happen, but if it is just for interest rate purposes, I think it's really driven by the monthly savings and the breakeven period that there's going to be for breaking even on any closing costs that are associated with it.

7:25 And my, in my opinion, if the closing, if the breakeven point is less than a couple of years, it's generally worth it. Um, if the breakeven period is four years, then I think that's too long. And I would probably, I would probably wait. But generally when I'm talking to people, you know, everybody's situation is different and, um, you know, how, how much is the savings every month and is that really going to impact you? So I I've had a, I've interestingly enough, over the last year or so, I would say interest rates is such a topic of the news, right? Everybody's talking about the fed meeting and what are they expecting and what are they going to do?

8:05 And what does Trump want? And what does Powell want and what's driving what? Um, and the bottom line is like that affects it somewhat, but it's not, you know, I've had so many people where I've, you know, when there's all the talk about the fed meeting coming up and the expectation is they're going to cut the rate X amount, a half, a half a point, a quarter of a point, um, three weeks before that actual meeting, we usually see the expectation reflected in rates, so we see the draw. I probably reach out, I reach out to clients who I know are, you know, at a certain rate and there's, there's a good savings and this might be a good time to jump in this current market.

8:50 Since everybody's so aware, so many people say, well, the fed is going to meet and they're going to lower the rate. So I'm going to wait. And when they wait, they might actually lower the rate. The fed might lower the rate, but that might make mortgage rates go up because at the meeting they talked about, there was dissent among the governors. Um, they don't, what they, the next meeting they had said they might cut, but now they're thinking they might not. And they're looking at, they're talking about inflation and they're talking about the employment numbers. And so it's not a direct correlation when the fed makes a move that that's, that that's going to affect the same way. It might be more about what they expect to happen in the future than it is what they expect to be right now.

9:36 Right. Yeah. Buy the rumor, sell the news. Right. And so like what I, what I always say, yeah. What, what I always say to people is if the savings feels real to you right now with saving a half a point or a point or whatever it is, $200, $500, everybody has a different threshold of what they want to save every month. If it feels good to you and you don't want to miss it, do it. You can always do it again, but you're kind of stepping down instead of waiting. I mean, like anything, like the stock market, you don't know it's the bottom until it starts to go up. Yeah. Right. So, um, I had a lot of, Tell us your thoughts about points.

10:19 Um, when to utilize, uh, the, the use of points in a acquisition of a mortgage or when do you say never use point? You know, how do you think about, uh, that willingness to, you know, throw money at this up front for a lower, maybe explain what they are. Cause right. Good point. One point is 1% of the loan amount. So if it's a $400,000 loan, one point costs $4,000. The maximum allowed amount of points you're allowed, a borrower is allowed to pay is three. You can't pay more than three points. Um, most of the time, I don't think it's worth paying points because it's a straight fee.

11:06 Um, it doesn't do anything except it's basically buying you a little bit lower interest rate. But if you have to pay a point in that example, $4,000, and it's only going to get you a quarter of a point, better interest rate, you have to figure out the dollar savings of that and then divide it into the amount of points, the dollar amount of the points to see how long it's going to take to before you actually start saving. So, um, during COVID, when we had those crazy rates, like in the, you know, high twos, low threes, if you paid, if you could pay points and get a 30 year fixed for like one and a half or something, by all means, that makes sense to do, because you're never going to get rid of that mortgage, right?

11:48 You're going to, you're going to have it. But otherwise, I think, um, most of the time, it really doesn't make sense if your employer is paying them for you, or if the seller is paying them as a, as a benefit, of course, take advantage of it and buy yourself a better rate. what are your thoughts about, uh, adjustable rates versus fixed rates, you know, as a consumer, not a professional that you are, um, I tend to think, oh, I want fixed. I want guarantee. I want to, I want to be in a position where I can keep my mortgage indefinitely, but we know that most people don't. Um, so, uh, what's your take on that? Um, again, with the interest rate environment we're in, where, you know, it's not, uh, 2021 where interest rates are terribly low and, you know, which direction could they go?

12:41 You know, we're, we're in a different moment in time, maybe we're like, where will interest rates be? I don't know. You know, so is there advantage to, uh, utilizing, uh, an adjustable rate or is it only, you know, upside risk? Um, how do you think about it? Well, right now in a, on a conforming loan, which is in most across the board, the conforming loan limit is $806,250 or $806,500 in certain counties, Barnstable included, where there's a high balance and high balance conforming category. You can go up to $914,250 on a conforming loan.

13:22 Wow. That's incredible. I know. Yeah. And in the conforming loan rate market right now, arms are worse than 30 year fixed. So there's no reason to do it. On the jump on jumbos right now, there's probably about a three eighths to maybe a half a point savings in interest rate to do an adjustable rate mortgage. Um, but I think it, what it really comes down to is the, the buyer or the borrower's attitude toward risk. So to me, how long they think they really will need the mortgage. Exactly. Like if they know for sure that in, for, for whatever reason, they know, like within three years, they need to, they're either going to pay off the loan or sell or sell the property.

14:12 Then of course, why not? You would take the lower rate if I, you know, if you're doing a five year arm, it's fixed for five years. And if you know, within that time, but if you, if you think it's like your forever house, in my mind, like I'd rather pay a little higher interest rate and know that's my worst case scenario forever. I kind of like the way you think, because I think that relates to the way I think about it too. And I, I, I tend to think a lot of mortgage professionals seem to, uh, for some reason, really love that variable rate. Maybe it's because it requires people to turn over their mortgage or something, but, uh, it's easier to qualify. Right. I mean, no, no, no, because you don't, when you qualify for a, um, an arm, it's not just, we don't just use the actual interest rate.

15:01 You have to use the fully indexed rate. Okay. So, which is whichever index the arm is based on plus the margin is the rate that you have to use. And so it's generally higher. So, yeah, so it could be higher index that's used today. It used to be LIBOR or something like that, but I think that's changed. Hasn't it? What, what do you use these days for a variable rate now? Now it's the SOFR. I don't know what that is. Uh, don't ask me what it stands for. It's a European, it's a similar, it's a, it's a place of the LIBOR. Okay. Um, well, so we've talked a little bit about jumbos and we talked about adjustable.

15:41 Um, one of the things I, I was curious to get your take on, we've heard that, uh, for younger families, uh, the increase, you know, the requirement to pay their student loans again has created, uh, some challenges where maybe people haven't been paying them and they have the bad credit or, uh, or maybe people who have been through bad credit events with bankruptcies or things like that are, is it harder for younger families to get a mortgage these days because of a greater incidence of credit challenges, you know, credit issues, or is that just the same across the board? Is it, is it just different for younger people than it is for people who have, um, more years behind them?

16:29 I don't know. I mean, I, I think that, um, the incidence of credit issues is, is not, certainly not just young, younger people. Like it's, it's, it's everywhere. I think that's maybe harder now because like debt to income ratio is a, is a, is a big thing that obviously that we look at. And if you're younger in earlier in your career and your income is not really up there yet, house prices are high. Interest rates are high. Car payments are higher. Everything is higher. It's harder for them to have a qualifying debt to income ratio. Yeah. Um, and student loans in there definitely is a factor or for parents who have co -signed on student loans for their kids also.

17:18 Um, because that always think about those kinds of implications. Do they? Even if the intent is that the student's going to pay them back, it's still on the parent's credit report. Right. Generally, if, if somebody has co-signed, um, and they're the one doing a loan, if you can, if we can prove that that for the last 12 months, the, so in the instance of a parent's co-signing on a student loan for a child, if the, if the child is paying the, making the payments and you can show 12 months worth of payments by the child, we don't have to count the debt for the parents. So, but then again, if the kid is late, then it's also on the parent's credit.

18:01 So it's definitely something to be thinking about. Yeah. As a parent, you got to pay attention to that. Even though, you know, Johnny or Susie is planning to pay it. Uh, they're going to want to, you know, have their, uh, pay their rent before they're paying their student debt or whatever, you know, so, or don't be able to pay for food, so they're paying it, you know, really important, I think for parents who are, who are doing that is to make really clear to their kids that if you're having trouble or you feel like you're tight or whatever, don't be afraid to tell me, because I think that happens a lot.

18:41 The kids are like thinking, oh, we'll figure it out. We'll figure it out. They don't realize the impact to say like, let me know, because that's going to hurt all of our credit and we'll figure it out between us. Don't just be late or not pay. Ignore it. Yeah. Yeah. Good. Maybe do a little bit of independent verification as a parent. Yeah. Log into the portal and just, yeah, good point. Exactly. Russ, do you have any particular questions? Yeah. One, one that I had coming into this discussion was, you know, with all these, especially in this area in the Northeast and Cape Cod specifically, a lot of people have those mortgages that are at Chris's rate or Jeff's, you know, really favorable rates.

19:30 Have you seen any kind of pickup in mortgage activity as rates have started to come down a little bit? Where people are willing to, to, you know, get a new home and get a new mortgage. Uh, what, what are your, what's your take on that? Definitely. It feels like it's loosened up just in the last few months. It's becoming, you know, the last several years it's really been a seller's market and a good, a good house comes on and there's like 20 offers and it goes for a hundred thousand over asking, right? Like it's crazy. And, um, now it's shifting. I think people were holding off. Um, I think now people are kind of accepting that this is a little bit of a new reality, not, you know, right after COVID it seemed like everybody thought it was a blip, but then it lasted.

20:17 Right. And so the, while they thought it was a blip, I think people were waiting, waiting because they thought, Oh, it'll come back. It'll come back. And it just kept going up. Um, so now I feel like now I feel like people have a little more, um, touch with reality and, and it seems like, you know, they're like, all right, look, we, we were going to move. We waited a lot of people, more people are putting houses on, more buyers are not really waiting. Um, one interesting thing about people always ask me, is it, should I, is it the right time to buy? And, or should, is it better for me to wait for rates to be lower? And, um, honestly, I think when rates do come down, prices are going to go back up.

21:00 So, and when you, it's a lot easier to change your mortgage than to change your house. So I actually think it makes more sense to buy now, if the rate's a little higher than, than you like, or then you think it's going to be, who cares? You can always refinance, find the right house, take advantage of it. So what's the old saying? Marry the house, date the mortgage, date the rate, date the rate, date the rate. But I think it's, I think it's better to, um, if you find a house you like, the rate is not, it's not going to be so crazy right now, especially since we've come down a little bit. Um, and then, and then refi as there are opportunities.

21:42 Jeff, did you have anything you want? Yeah. I have a question that I want to ask on behalf of Russ and some of the other younger folks like my son and other people who are like thinking about it. When's the right time to check in with a mortgage broker, like Russ and other people, like it's so expensive. What can we afford? It kind of just has this self-fulfilling prophecy where people wait and not sure when, when's a good time to check in with you to start that process, to see what, see what they could get approved for, or maybe get some suggestions for people like you. I say, I think the earlier, the better, honestly, I think like if you're thinking about it, it doesn't hurt to kind of go through the exercise for one thing.

22:27 You're going to find out if there are any red flags, another, you're going to find out how much you really need to save to have toward a down payment and see, get a feel for what the monthly payments look like. You know, all the things that are included, their real estate taxes, there's homeowners insurance, you know, just so you know, so you can be kind of like more focused on what level of house you're going to buy. And people like me, loan officers, that's what we do all day long is we talk to people about what they might be able to do. It's not like nobody's going to feel like they're wasting their time with you. I love when someone calls me and says, I'm two years out, but I'm trying to understand that it's a great conversation.

23:10 And you, you're so much smarter when you, when you start the process and when you start looking, you're prepared for when a time comes. Yeah. And not looking at something like, you know, a crazy expensive situation that you would not even be reality for you, or maybe it would make you think about, Oh, well, what if we could probably do it sooner? If we bought a multifamily and lived in one side and rented one side, it might be things you're not even thinking about. You don't want to take your life around looking at houses that are way over what you can really afford. Ability before you know that. That can be bad. Jeff used the term mortgage broker, and I'd like to have you talk a little bit about the notion of what are the virtues and drawbacks of working with someone who is a direct lender or a broker through other lending providers and maybe elaborate how you're positioned in this process.

24:13 That's a good question. So I'm not a broker. Uh, we, more movement mortgages, a direct lender, which means that we borrow directly from the fed and we, we actually service our own loans. Um, we have everything in house. People like, I'm sure that you'd service the loans you make. For conforming loans. Um, so, so that when, when it's a direct lender versus a broker, we're doing everything, so we have under, we have processors, we have underwriters, we have closers, we fund with our own money, and then we sell the investment part of the loan, we keep the servicing, but we sell the investment part of the loan on the secondary market.

25:02 So what that means is that we have 100% control of everything, of the whole process. So if there's a question or a problem, or an underwriter is asking for something that seems unreasonable, or there's a conversation to be had, it's all very contained. When you work with a broker, I imagine the underwriters know you, Donna, and that if you're bringing a risk as it were to them, that they know your take, uh, is valuable because you've had experience and, and you wouldn't be bringing a loan to them that you didn't think was a good risk type of thing. Am I right? To a degree, to a degree. I mean, it's very, um, you know, in this whole world of AI, right?

25:47 Like when, when we take a loan in, if it's a conforming Fannie Mae, Freddie Mac loan, it goes through a desktop underwriter. So we put everything in, which you have to be able to think about like what you want to make sure is in and what you don't want in and whatever. But then the, the automated desktop underwriter spits out approved, eligible proceed with caution and what it, and it'll tell you the issues, right? Um, so the, and what the underwriter's job is basically to verify the file with that desktop underwriter. So there's gotta be backup paperwork and then they're analyzing the bank statements and the pay stubs and everything else to make sure it matches what's in the application.

26:31 So there's still a manual underwriting component with you. Yes, definitely special circumstances. You can perhaps work out, but you have to get an approved, eligible on the automated underwriter for a conforming loan, but there are, but there are a lot of nuanced ways to get that right. If you're good at it and you know how to, what it likes, what it doesn't like, what it might need, you can't make stuff up out of nothing, but you can be smart about what you're, what you're putting in there. Um, so back to the original though, a broker is just basically a middleman. And so they're dealing with the consumer on one hand and the investor on the other and basically collecting everything, putting applications together, sending it off, but then it's off with the broker and it's a little bit of a black box.

27:23 So, you know, if it's a vanilla loan, probably no problem, but if there's any conversation that needs to be had, I feel like that's a trickier situation because like for me, I have a team, like I can just pick up the phone or send an email or a text or whatever. And my team is all there and all together. And we're all working toward the same thing. Now, Donna, you've had a career as a mortgage professional. Um, have you always been in this business model, um, or particularly with this company or have you seen both sides of this? Um, in the very, very beginning, I started doing this in 2004 and, um, the very first company I worked for, we were more of a, we were more of a broker, but we had with some investors and then we had correspondent lending relationships with some, so it was a little bit of a hybrid, but that might have just been more an indication of the times.

28:20 Um, but definitely felt like, you know, especially when it was crazy busy, when you lock a rate, there's a number of days that you have to close by or you lose it. Right. And if your file is off with somebody who's not part of your company, they don't care about your, your dates, right? Like they're busy and you're crazy and you're calling and calling and calling. Whereas if you're working with someone who's a direct lender, it's everybody's interest to you. So you, you really feel a conviction about the virtues of this approach. It's definitely, yeah. And as you alluded to earlier, Chris, almost all mortgages with brokers are sold.

29:00 Yes. And that's the frustration with third party who, yeah. And therefore who services that and a lot of frustration of like, you know, that changes over repeatedly and it did during certain time periods, it would change. That happens. I mean when it's happening all the time, it's frustrating, but yeah. So for the most part, we service all the conforming loans on the jumbo on the jumbo loans, we have correspondent relationships, which means that we have agreements and contracts with the investors and those investors might, they're big, big banks and, and mortgage invest, mortgage companies.

29:46 And we, so we lock the loan ourselves. We actually underwrite we're delegated, which means that in our agreement with those investors, we've gone through a process and they trust us to underwrite to their guidelines and we close the loan in our own name with our own money. But ahead of time, they've said, we guarantee that we're going to buy that loan and take it over. So on the jumbo loans, while we close in movement, mortgage, whoever it's with chase, or, you know, we have a number of jumbo investors. We know that they're going to take it over and they're going to service it.

30:27 Donna our listenership though, you know, like our clientele may, may primarily be in Massachusetts because that's where our office is, but it may very well have, we have listeners around the country. So, you know, when it comes to working with someone like yourself, are, do you have limitations as to where you work with people going through this mortgage process? Yeah. Loan officers have to be licensed federally, but then you have to get licensed for each state that you want to do business in. So personally I I'm licensed in Massachusetts, New Hampshire and Florida.

31:08 Um, but our company has, we have an interstate group and we have also so many offices and loan officers all over the country, so we pretty much cover most of the states. So like if I have a client whose child is in another state and they, and they want me to help them, I can line it up. Yeah. And, um, and that way I can kind of stay in the loop too. And, um, but I can't actually work on the loan. Mortgagesbydonna.com. You work with countless financial advisors through the financial planning association and have for many years, you've been a big supporter of the financial planning process and, uh, firms that, uh, work with clients in a, you know, holistic kind of approach that you're part of the team in that effort.

31:59 So, um, just a little plug for you there as someone who looks at the big picture as you're thinking about these kinds of issues. So definitely reach out to Donna at mortgagesbydonna .com. If you need some help. Donna, thanks so much. This has been good. And anyone else? I'm good. I, did I cover everything we wanted to ask? I hope so. Yeah. Give her a call, Russ. Come on. I have no boundaries. I have no boundaries. Call me, text me anytime. With that. Uh, thanks so much for sharing your expertise, Donna. Until next time, everybody keeps driving for something more.

32:39 Thank you for listening to something more with Chris Boyd. Call us for help, whether it's for financial planning or portfolio management, insurance concerns, or those quality of life issues that make the money matters matter. Whatever's on your mind. Visit us at something more with chrisboyd.com or call us toll free at 866-771 -8901. Or send us your questions to amr-info at wealthenhancement.com. You're listening to something more with Chris Boyd, financial talk show, wealth enhancement, advisory services, and Jay Christopher Boyd provide investment advice on an individual basis to clients only proper advice depends on a complete analysis of all facts and circumstances.

33:20 The information given on this program is general financial comments and cannot be relied upon as pertaining to your specific situation. Wealth enhancement group cannot guarantee that using the information from this show will generate profits or ensure freedom from loss. Listeners should consult their own financial advisors or conduct their own due diligence before making any financial decisions.