Time to Refinance?

This faith and finance podcast is underwritten in part by Movement Mortgage. Movement provides residential home loans in all 50 states. Founded in 2008, amidst one of the biggest financial meltdowns in American history, Movement set forth on a mission to create a movement of change in their industry, in corporate cultures, and in communities. So that a portion of their profit creates a long term positive impact in communities, both close to home and around the globe through the Movement Foundation and Movement Schools. It all comes back to their mission to love and value people. Learn more at movement.com slash faith.

dot org. If you bought a house in the last couple of years, you've probably been wondering, when can I refinance? Hi, I'm Rob West. The Federal Reserve has one interest rate cut under its belt with more expected before the end of the year. So when will it make sense to refinance your mortgage? We'll explore that today. And then it's on to your calls at 800-525-5200.

That's 800-525-7000. This is faith and finance, biblical wisdom for your financial decisions. Well, we want to give a shout out to Movement Mortgage, an underwriter of this program, for a great article on their website titled Refinancing. Calculate your breakeven point first.

We'll put a link to it in today's show notes. The article points out that when interest rates fall below what you have on your current mortgage, it's time to consider refinancing. However, there are other factors to take into consideration before doing so. Many advisors will tell you only to do a refi if you can lower your rate by at least a point, if not two.

You probably can't go wrong with that simple approach. But there's another way to figure out the right time to refinance, and that's by determining your breakeven point. That gives you a clear picture of when you'll be able to reap the financial benefits of the refinance. The breakeven point is when the interest you save by having a lower mortgage rate equals what you've spent in closing costs, which typically runs from 2-5% of the loan value.

The answer will be in number of months, and knowing that number will help you decide future plans. So, what factors will have an impact on your breakeven point? Well, for starters, there may be application and origination fees for processing your loan. You may also have to pay for an appraisal. Other fees might include a title search and title insurance. Add to that a credit report fee, inspection fees, and prepaid interest to cover the loan until the end of the first month. Sometimes, property taxes will need to be paid upfront, prorated from the date of your closing to the end of the tax year. The first year of homeowner's insurance may also need to be assessed at the closing table along with recording, escrow, and attorney's fees.

Add it all up. For a $200,000 mortgage, typical closing costs could run $4,000 to $10,000. But keep in mind that the more you save an interest per month, the quicker you'll reach your breakeven point having paid off your closing costs. Smaller reductions in your interest rate mean it will take longer to reach that point. Another important factor in how soon you breakeven is the term of the loan. A shorter term, like a 15-year mortgage instead of a 30-year one, will usually get you to the breakeven point sooner. That's always the case with a mortgage.

Simply put, the shorter the term, the better off you'll be. You not only pay off closing costs quicker, but you also pay far less in interest over the term of the loan. That's why we always recommend that you never extend the term of your mortgage when you refinance. If you took out a 30-year mortgage five years ago, you should refinance to a 25-year term or less now. Otherwise, you'll end up paying more in interest over time and wiping out much of the savings you get from the refi.

So, to determine your breakeven point, you only need two numbers. Your monthly savings with a lower mortgage payment based on your new lower interest rate and the total amount of your closing costs. Divide the cost by the savings to determine how many months until you breakeven. If it's more than 60, you should wait to see if rates drop even more. Another critical factor to consider is how long you intend to stay in the house.

If this is a starter home and you plan to move up to something bigger in a few years, a refi may not be the best fit for you, but you can decide that after determining your breakeven point. Earlier, I mentioned Movement Mortgage. You may not know it, but Movement is a thoroughly Christian company founded during the Great Recession to help God's people purchase homes. But what makes Movement truly exceptional is that it has given $377 million to local communities in the U.S. and abroad. For example, the Movement Foundation has funded programs that provide trained service dogs to veterans suffering from PTSD. It also helps spread the gospel worldwide by equipping local churches with buildings and discipleship tools. Well, when you've done the math and determined it's the right time to refinance, we hope you'll consider Movement Mortgage.

Every time you make a monthly mortgage payment, you'll help make the world a better place. To find out more, go to movement.com slash faith. That's movement.com slash faith. All right, your calls are next. The number 800-525-7000. That's 800-525-7000. I'm Rob West and this is Faith and Finance.

We'll be right back. What's most important to you when it comes to choosing your financial advisor? Someone who's aligned with your biblical values? How about someone who will take the time to explain your options? Certified Kingdom Advisors are professionals who meet high standards in competence and integrity and have been trained to offer biblical financial advice.

To find a Certified Kingdom Advisor in your area, visit faithfi.com and click Find a CKA. We're grateful for support from Movement Mortgage, who provides residential home loans in all 50 states. Guided by a mission to love and value people and a goal to redefine the mortgage process, Movement seeks to help others achieve their financial goals. You can find out more at movement.com slash faith. Movement Mortgage LLC supports equal housing opportunity. NMLS number 39179.

For licensing information, please visit nmlsconsumeraccess.org. Great to have you with us today on Faith and Finance. We've got lines open for you. We're taking your calls and questions throughout the entire broadcast.

There's still more than half of our program remains today, which means we have room for you. If you have a question in your financial life today, something you've been wrestling with, you'd like some wise counsel, somebody to come alongside you in that, we'd love to be that partner with you. Just call right now, 800-525-7000. Again, that's 800-525-7000. Let's go to Indiana. Hi, Hank. Go ahead.

Hey, Rob, I appreciate your program. My question is I've got a mutual fund that's called a capital appreciation fund. And it uses stocks and it uses dividends I can do either way. And I was wondering if I can use the dividends to get into more cash than I am in the stock and be safe. Does that make sense?

It does. Yeah, absolutely. So a capital appreciation fund would be, you know, usually a balanced and its approach that it has both stocks and bonds, and you have an option to either reinvest those dividends or to have it paid out to you. And if you choose to have the dividends paid out to you, instead of reinvesting, then it could build the cash portion of your portfolio, which allows you to increase that percentage in cash over time, which makes you more conservative and more liquid.

So that's absolutely an option. What do you have in the way of investable assets today in terms of the total? In that fund, I probably got about 125,000. All right. And do you have liquid assets? I wanted to do that 60-40 split. Oh, yeah, I'm good that way. But I just, you know, I'm not happy with the stock market, the way it's going. I mean, I know it's going up, but it also can go down. And I keep hearing you say 60-40, 60-40.

I'm 69 years old. So if I did those dividends, then that would be safe. Right? That'd be like being in the bank. That's right. You'd probably want to have that put into the money market fund. And then yeah, that is on the more safe end of that risk spectrum for sure.

Nothing's guaranteed, but it's pretty close to it. So it sounds like you got a good plan there, Hank. Hey, call anytime. Thanks for your kind remarks about the program, sir.

Let's go to Illinois. Hi, Beth. Go right ahead.

Hi. Yes. I've got a question about a Roth IRA. I have my finances are set up in a trust. My only debt is my home, which I owe 20,000 on.

I got to pay that off. But I have both a Roth IRA as well as a traditional IRA within that trust investment setup. And my question is, do I need both of those?

Or should I eliminate one? My parents have both passed away. I've gotten portion of the inheritance, and they have a bit that's yet to come. So I didn't know with that coming, if I should keep the Roth, what I should do with those two.

Yeah. So let me just clarify, what is what are the types of accounts you said you have inside the trust? I have a Roth IRA, I have a traditional and then I've got a couple of individuals that are just smaller.

Okay. Yeah, because you can't put an IRA inside of a trust while you're alive. You can name the trust as the beneficiary of your IRA. And then when you die, the trust becomes the legal owner of the IRA and then manages it for the benefit of the beneficiaries.

Is that what perhaps is going on here? It's two different accounts. Okay. And one is labeled as a Roth. Okay. Yeah, but they wouldn't be inside the trust.

So one would be a traditional IRA, I suspect, and the other is a Roth IRA, correct? Yes. Okay. And then you would leave the trust. Okay. And then you would likely have the trust named as the beneficiary. So that if, you know, when you pass away, your IRAs, one traditional one Roth would then, you know, go into the trust and the trust becomes the legal owner of those IRAs.

And then the trustee would manage those two accounts alongside. Yeah. Okay.

No problem. I just want to make sure we're Yeah, you're clear. So in terms of should you have both? Yeah, they serve two different purposes. In fact, there's plenty of research, Beth, that says that it makes a lot of sense to have both a traditional IRA assets and Roth IRA.

And here's why. We just don't know what's going to happen to the tax code in the future. I mean, we don't know what's going to happen in the next election election yet. We do know that if nothing changes, the Trump tax cuts and Jobs Act expires at the end of 2025. So rates are likely headed higher, depending on whether you know, we see a Harris Harris administration or another tax cut.

or another Trump administration, there's pretty stark differences with regard to their ideas around taxation. So you know, the idea behind the Roth is and the traditional, the Roth in a high tax environment is going to give you a great option, if you need that money to access it without paying any taxes, because the benefit of the the Roth IRA is that's money that's already been taxed, and now it grows tax free. And so when you pull it out, you pay no tax with the traditional as you pull it out. You are going to have to pay tax on it now. So long as there's a qualified charitable distribution in place, which exists today, you can give that money away.

And you don't have to pay tax when it comes out. But every other type of withdrawal that you would possibly have from a traditional IRA is going to create a taxable event. So I would say you probably just leave those right where they are, manage them in terms of the investments the same, according to what they're ultimately for, whether that's, you know, current giving, again, by way of the charitable distribution, or in the case of the Roth, a withdrawal, or if you want to leave them for your beneficiaries, then again, you would just make sure that the beneficiary named on both of those accounts is the trust, because you've already done the work to decide how the trustee is supposed to manage all of your assets at your death, including these IRAs.

But I don't see any reason to make any changes on them. What is there a percentage that you would deposit into each of those when it comes time or like one more than the other or not necessarily? Yeah.

So in terms of how much to put in the traditional versus the Roth? Yes. Okay. Are you working? I'm working full time. I'm single. And again, I don't have any debt besides the house.

Okay, got it. Yeah, I mean, so there's a rule of thumb, this was actually based on some research that was done, looking at 1000s of retirement accounts in different tax environments to determine how much you should put in a Roth versus a traditional. And what they came up with was, you know, you take your age minus the number 20. And that was the portion you put in to the the Roth, and then the rest goes into the traditional. So if you're 50, you'd put 30% in the Roth, and then 70% in the traditional, which kind of gives you a little bit more in the way of the tax deduction now in the traditional with some going into the Roth, which means you put a smaller percentage into the Roth as you age. And and I like that, because really, the primary benefit of the Roth is early, when you've got a lot of years on your side in terms of when you can have this tax free compounded growth.

And then later in your working life, as you get closer to retirement, you benefit typically more from the current tax deduction, especially, you know, in when you're near the peak of your earning potential. So that might give you a little bit of a guideline there, you know, on how to think about it. Is that helpful? Yes, very helpful. You said take the age minus 20.

And that's whatever is left the percentage is what you should put in the Yeah, so the answer to that one age minus 20 is what goes in the Roth, and then the balance that gets you to 100% of what you're putting in would go in the traditional. That's very helpful. I appreciate that.

All right. Thanks for your call, Beth. It sounds like you're well planned. And I'm delighted that you were on the program today.

And you found some value there. Call anytime. By the way, phone calls are welcome and lines are open. So you have a financial question today. We'd love to tackle it with you that number 805257,000. Again, it's 800-525-7000. This is faith and finance biblical wisdom for your financial decisions.

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Principal loss is possible. Foresight Fund Services LLC. Thanks for joining us today on faith and finance. Here in our final segment today, we're taking your calls and questions on anything financial. I've got room for you, perhaps one or two more calls. 800-525-7000. That's 800-525-7000. You can call right now.

Let's go out to Louisiana. Hi, Nate. Thanks for calling, sir. Go ahead. Hey, brother Rob.

Thank you for having me. Yes, sir. So I'm self-employed and my wife does not work. And so I'm trying to really make sure I do a good job with saving for retirement. I'm almost 40 years old and I have a Roth IRA. And there are some years when I have more to set aside than what my Roth IRA can accept. What would you recommend my second choice be on those years, which isn't every year, but like I said, sometimes I do have it maxed out and I still have some left over to save for retirement. And I do have it diversified with 10 percent precious metals.

Cool. So basically what I'm asking is like, what would your next choice be after a Roth IRA? Yeah, it would be a SEP IRA, S-E-P, which stands for simplified employee pension.

And it's a great option for self-employed people, business owners and freelancers. So think about it, Nate, like a traditional IRA with tax deductible contributions and investments that grow tax deferred until retirement, but with a much bigger contribution limit. Now, it's not like the Roth where you can put it in after tax and get the tax free growth. It's like the traditional IRA, but it'd be a great complement to a fully funded Roth IRA every year. The beautiful part is there's just very low administrative costs, not like a simple IRA or an individual 401k. And so there's no filing of annual reports with the IRS and you can put in quite a bit of money. So you can put in 25 percent of your compensation or $69,000 for the year 2024, whichever is less. So either 25 percent or $69,000.

And it would be easy to set it up. You could probably do it wherever you have your Roth IRA and you could invest it exactly the same way. In terms of your kind of rule of thumb target, and don't be discouraged if you're not near this because you just got to start somewhere and try to make progress. But in terms of where you want to be at age 40, ideally you'd have one and a half to two and a half times your salary saved up on your way ultimately to retirement age where you'd want to have at 65, probably 10 to 12 times your salary saved up. But the most powerful force you have working for you, Nate, to build wealth between now and retirement whenever God redirects you toward continuing in this work or taking a season of sabbatical and then redirecting toward something else where you're serving the Lord in a different capacity, perhaps without pay. Your very best force for building that wealth is your income. So we want to take full advantage of that and live modestly and put as much of that as we can away. So that would be, I think, my first option beyond the Roth and the SEP IRA would be looking at perhaps a health savings account. If you guys are relatively healthy, you could get a high deductible health plan, max out a health savings account. That becomes, if you don't use it all and you invest it, a great, again, supplemental tool to build wealth that you can use tax advantaged in retirement would be another great option. So how do those sound?

Sounds great. I hadn't really heard of a SEP IRA. I didn't know how that was different from a regular IRA.

Yeah. So you can contribute to a SEP in addition to the Roth and the traditional so that that $7,000 you can put in a Roth for you. And if you're married, you and your wife as a spouse IRA, you can go up to $7,000 between a Roth and a traditional. So you couldn't put seven in each. If you did seven in a Roth, you can't put anything in a traditional IRA. With the SEP, you can do that in addition to your Roth and traditional.

So you could put seven in the Roth and then another either $69,000 or 25% of your compensation, whichever is less into the SEP alongside it. That's very helpful. I really appreciate it.

Thank you very much. Hey, absolutely. Nate, what line of work are you in? What do you do? Self-employed with law and service. Okay, cool.

Yeah, I love it. What are your plans? Do you do it all with one team? Are you trying to build some additional teams and try to move more into a management role? What are you thinking? No, I'm not trying to move into a management role at all.

I don't want to be a manager. Okay. I hear you. You like getting out there and doing it yourself and seeing the final product, I guess, right?

That's correct. I like it. You know, it's one of those few areas I don't mind cutting the grass. And the reason is, there's so much in my life that happens incrementally over time. You know, I don't get to see the fruit of it right away.

But there's just an immediate gratification of seeing that lawn done, you know, a couple hours after you start and it feels really good. And I believe some people have certain talents and some people have management skills and want to be a manager and God may want them to be a manager and other people, they may not want to be a manager. Oh, I completely agree with that. You've got to dial into how God has wired you and use those skills and abilities to glorify and honor him.

And not every job is right for every person. That is for sure. It sounds like you found your sweet spot, my friend and doing a great job. Well, listen, I appreciate you being on the program today. Call anytime. All right. God bless you. Thank you.

And you as well. 800-525-7000 is the number to call. Before we wrap up today, we did have a caller that could not hold but wanted to voice her question. Dominique in Florida said, my mom and I and my sister have our names on a home. We're wondering what's going to happen when my mom passes. My sister says we will automatically be able to divide her portion.

But I wanted to check with you. I think the question is how was this home titled? Is it with right of survivorship or is it joint tenants?

You would probably want to have an attorney look at that and explain how Dominique this home is titled. One of two things will happen. Either you all will automatically receive equal parts of her portion. The the other option is her portion.

So let's say you each own a third today. Her one third would then be passed according to her will or was outlined as a part of her estate. And so if she named you and your sister as her sole heirs, then the same thing would happen. She would then her portion of the home would go to the two of you. But if there's other people included in her will, it wouldn't mean that it would automatically go to you. So I think what you need to do next, Dominique, is have an attorney look at how that home is titled. And that will tell you whether or not, again, you will automatically get her portion or whether her portion will pass according to her will and her estate.

And then you would want to make sure that she has a valid will in place. Dominique, thank you for your call today. If we can help you further in the future, don't hesitate to reach out.

Now, folks, that's going to do it for us. So thankful for the folks that make this possible every day. Sandy and Devin and grateful for Jim Henry as well and everybody here at Faith. I hope you have a great rest of your day and come back and join us tomorrow. By the way, if you'd like to support Faith by the faith and finance broadcast, you can do that online quickly and securely at faith. By just click, give or bless you. Bye bye. Faith and finance is provided by Faith by and listeners like you.