By Adam Frinsco of The Advocates
Today’s Distillery feels like an appropriate topic as we (as of this writing) are currently experiencing our second consecutive up day in the markets. I think I speak for everyone when I say I’m operating at a more relaxed level today.
But let’s also be honest, we don’t know where the market will end up today, let alone a month from now. While we’re all still coming to terms with what this “new-normal” actually means mid and long term, I want to offer up two planning strategies that we at The Advocates think appropriate to consider given the current market environment.
Remember in years past when we thought 30 year rates were low? Well now the average 30 year is around 3.25%! With rates likely to stay low (or even move lower) for the foreseeable future, it’s time start considering refinancing if you haven’t done so already.
The cost to refinance is typically in the thousands, but the benefit in doing so can often equate to hundreds of dollars of savings per month.
As an aside, most refi break even calculations make sense when your mortgage is in the first half of its’ life, in which payments are largely directed towards interest opposed to principal. We can help with the break even math if you’re considering it.
A Home Equity Line of Credit (HELOC) is just that, a line of credit on the equity in your home. It exists as a back stop to your emergency reserves and can be “tapped” at any time, up to a certain limit. Only when you access the equity in your home does the interest begin to accrue.
Current rate offers are around 2.75% over 5 years, and the interest may be tax deductible depending on the nature of the expense.
We see this as a valuable risk management piece to any financial plan. While you may very well have enough in emergency reserves to get you through whatever potentially difficult situation the market/economy puts you in, a HELOC acts as a secondary backstop in case you need more flexibility in your cash flow. It also prevents you from having to sell investments in your portfolio at potentially low prices.
A HELOC doesn’t have to be utilized as a an emergency backstop, but can also be used as a useful tool in a few situations.
For example, you can use it as a bridge loan when moving to a new home by funding the down payment with the equity in your current home prior to selling it.
A HELOC can also be used for home projects/repairs that cannot wait, but that you don’t want to fund from emergency reserves or a portfolio that may still be recovering from a recent draw down.
To Wrap Up
Our goal is to make sure our clients meet their goals, and that is often making sure our clients have appropriate risk management tools in place when we encounter turbulent times such as these.
If you’re interested in discussing either of the above strategies, please reach out to your respective advisor to discuss. Also know that we have trusted professionals in the banking and mortgage industry that can assist you in either of these strategies.
Have a great day!