Refinance or Hold Off? How to Play it Smart With Mortgages With Insights from AI and Fred Glick of Arrivva

Drew Thomas Hendricks00:00:00

Welcome to another special episode of We Fixed Real Estate. We’re going to continue the work that we started last week, diving deep into NotebookLM and using their AI dialogue to help explain some complex topics. Fred, what’s on the debate list for this week?

Fred Glick00:00:17

Well, this is interesting. I had a conversation with a perspective person who wanted to refinance their mortgage, and I basically tell them don’t do it. And there are many reasons why, and you’ll hear in the episode coming up, but really, you got to think about how long you’re going to be in the property. What kind of loan do you have now and how long is that good for and what you’re going to get out of refinancing? So there’s a whole bunch of things, it’s going to make you think a little bit, especially if you have an adjustable and you’re thinking of converting it to a fixed rate, it might not be the time to do that. And our two podcasters will tell you why.

Drew Thomas Hendricks00:00:59

Definitely learned something watching it. Before we tune in on that, and before we turn it on, I do want to ask, so as far as mortgage rates in general, they have been going up the past couple weeks.

Fred Glick00:01:12

There’s TikToks and Instagram, all these people, all these experts, “The Federal Reserve has lowered the interest rates by half a point.” Guess what, guys? The day the Fed did that, mortgage rates went up. And guess what? The three days later or so, the job numbers came out and they were very good. And guess what? Mortgage rates went back up. I think we did another one of these things where we talked about how this all works with the Fed and mortgage rates, so you can listen to that one to explain why.

But anybody who said, who pushed you, “Hey, the Fed’s lower interest rates to buy a house now,” do not use them. They have no idea what they’re talking about. Clueless. So, but enjoy this one. This is really good. If you’re thinking about refinancing, especially if you’re currently on ARM.

AI Podcaster 100:02:00

All right, so today, we’re diving into something I’m sure a lot of folks are thinking about these days, refinancing your mortgage. We’re going through your chat with Fred. He’s a mortgage pro. And honestly, there’s some real surprises in this one. You’ve got a 7/1 ARM on your hands right now.

AI Podcaster 200:02:17

Oh boy, an ARM. Those can be tricky.

AI Podcaster 100:02:19

Yeah. So for listeners who maybe haven’t dealt with one of those, that means your interest rate chills out for seven years. Then after that…

AI Podcaster 200:02:25

Who knows?

AI Podcaster 100:02:26

Exactly.

AI Podcaster 200:02:27

That’s when things can get a little interesting.

AI Podcaster 100:02:28

It’s like the calm before the potential storm. Right now you’re sitting pretty at 6. 125%. Markets hovering around 6. 375% for a fixed 30-year. So if you’re thinking, “Hmm, maybe it’s time to lock in some peace of mind,” I wouldn’t blame you. But here’s where Fred throws a curveball. He actually advises you to hold off on refinancing.

AI Podcaster 200:02:50

Really? No, that’s not what you expect to hear.

AI Podcaster 100:02:52

Right. You’d think he’d be eager to jump on a new deal.

AI Podcaster 200:02:55

That’s what I thought too. But honestly, that’s kind of how you know he’s a straight shooter.

AI Podcaster 100:03:00

Yeah, it shows he’s got your best interests at heart.

AI Podcaster 200:03:03

Exactly. Not just trying to make a quick buck.

AI Podcaster 100:03:06

So let’s unpack what he’s thinking here. Fred starts by comparing your 7/1 ARM to a 30-year fixed loan, just over the next seven years.

Which makes sense in a way, because it’s not like you’re going to refinance before that fixed rate period ends anyway. It’s all about how long you plan to actually live in your house.

AI Podcaster 200:03:24

Exactly. That’s key.

AI Podcaster 100:03:25

If it’s potentially your forever home. Right. Those short-term rate fluctuations might not be such a big deal.

AI Podcaster 200:03:30

Exactly.

AI Podcaster 100:03:31

Now, get this. Fred then goes on to talk about making extra principal payments on your current mortgage.

AI Podcaster 200:03:37

Now, this is where it gets interesting.

AI Podcaster 100:03:39

I know some people hear that and they’re like, “Uh, okay.” But trust me on this one. This is where understanding your mortgage can really pay off. See, every month, part of your payment goes towards interest, and the rest chips away at the principal, which is the actual loan amount, by paying extra on that principal.

AI Podcaster 200:03:59

It’s like you’re taking a sledgehammer to your debt.

AI Podcaster 100:04:01

Yeah.

AI Podcaster 200:04:02

Instead of just chipping away at it with a chisel.

AI Podcaster 100:04:04

That’s a great analogy, and this is where things get really interesting, especially with the whole California housing market.

AI Podcaster 200:04:09

Right, because it’s not just about paying off your loan faster. Yeah. It’s about building equity.

AI Podcaster 100:04:13

Exactly. And in a market like California, well, let’s just say those extra payments can really make a difference.

AI Podcaster 200:04:19

It’s like adding rocket fuel to your equity-building efforts.

AI Podcaster 100:04:22

I like the way you think with these analogies.

AI Podcaster 200:04:24

Well, you know what they say. Real estate is all about location, location, location.

AI Podcaster 100:04:29

And speaking of location, remember that comment Fred made about California home values? He said the only thing that could hurt them is AI.

AI Podcaster 200:04:36

Oh yeah, that was a good one. I think he was half-joking.

AI Podcaster 100:04:40

Probably. But still, it makes you think.

AI Podcaster 200:04:43

It definitely highlights how important it is to keep an eye on the bigger picture.

You know, those broad market trends.

AI Podcaster 100:04:50

Absolutely. Because making extra payments, like Fred’s talking about, it’s not just about getting rid of your mortgage quicker, it’s also about understanding how money works over time.

AI Podcaster 200:04:59

Exactly. It’s about opportunity cost.

AI Podcaster 100:05:01

There you go.

AI Podcaster 200:05:02

Could those extra dollars you’re pouring into your house, could they be working harder for you somewhere else?

AI Podcaster 100:05:07

That’s the question. And that’s where things get really personal because it all comes down to your own financial goals.

AI Podcaster 200:05:13

Right. Your risk tolerance, all of that.

AI Podcaster 100:05:15

And speaking of exploring different options, I got a kick out of Fred’s a little tangent about AI.

AI Podcaster 200:05:20

Oh yeah. Using it in his own business.

AI Podcaster 100:05:22

I know, right?

It’s like this whole other layer of the financial world.

AI Podcaster 200:05:26

It’s amazing how fast things are changing.

AI Podcaster 100:05:28

I know. It makes you wonder if someday we’ll all be relying on AI to crunch these numbers for us.

AI Podcaster 200:05:33

Right. Like a robo advisor for your mortgage?

AI Podcaster 100:05:35

Exactly. But for now, let’s bring it back to basics. What were some of the big takeaways for you from this chat with Fred?

AI Podcaster 200:05:44

Well, I think the biggest one for me, don’t rush into refinancing just because rates move a little.

AI Podcaster 100:05:48

Yeah. It’s easy to get caught up in the frenzy.

AI Podcaster 200:05:51

Exactly. You gotta think long game.

AI Podcaster 100:05:53

Absolutely.

AI Podcaster 200:05:53

What are your goals? How long are you planning on staying in your home? All that factors in.

AI Podcaster 100:05:58

It’s about finding that sweet spot between your mortgage and your life plans. And the other big takeaway for me, those extra principal payments, they might seem small.

AI Podcaster 200:06:08

But they add up.

AI Podcaster 100:06:09

They really do. Over the life of your loan, you could be saving yourself thousands of dollars in interest.

AI Podcaster 200:06:16

Potentially even tens of thousands.

AI Podcaster 100:06:18

It’s like Fred always says, sometimes the best financial moves are the ones you don’t make.

AI Podcaster 200:06:22

There’s a lot of wisdom in that.

AI Podcaster 100:06:23

It’s about being strategic.

AI Podcaster 200:06:25

Absolutely.

AI Podcaster 100:06:25

Not just reacting to every little market fluctuation. It’s about having a plan.

AI Podcaster 200:06:30

And sticking to it.

AI Podcaster 100:06:31

Exactly. Not just letting your emotions make decisions for you.

AI Podcaster 200:06:34

It’s like, uh, you know, when you go to the grocery store hungry, you end up with a cart full of junk.

Same idea with your finances.

AI Podcaster 100:06:42

Totally. If you’re not careful, you end up making impulsive choices. That you later regret.

AI Podcaster 200:06:47

Exactly. And speaking of things to be careful about, there’s one piece of the refinancing puzzle that Fred didn’t really touch on. What’s that?

AI Podcaster 100:06:55

The tax man. Or woman, of course.

AI Podcaster 200:06:59

Ah, you’re talking about those mortgage interest deductions.

AI Podcaster 100:07:02

Exactly. They can make a big difference come tax time.

AI Podcaster 200:07:05

Right.

AI Podcaster 100:07:05

And refinancing can really shake things up there.

AI Podcaster 200:07:08

Because it changes how much interest you’re paying.

AI Podcaster 100:07:10

And how much you can deduct.

AI Podcaster 200:07:11

Which ultimately affects how much you owe in taxes.

AI Podcaster 100:07:13

It’s all connected.

AI Podcaster 200:07:14

It’s like a financial ecosystem.

AI Podcaster 100:07:15

That’s a great way to put it.

AI Podcaster 200:07:17

Fred’s given us all these pieces.

AI Podcaster 100:07:19

All the building blocks.

AI Podcaster 200:07:20

And now it’s up to us to figure out how they fit together.

AI Podcaster 100:07:23

In our own lives. With our own unique situations.

AI Podcaster 200:07:26

Which is what makes these deep dives so valuable.

AI Podcaster 100:07:28

Absolutely.

AI Podcaster 200:07:29

We’re giving you the information you need to make smart financial decisions.

AI Podcaster 100:07:33

And hopefully avoid those costly mistakes.

AI Podcaster 200:07:36

We’ve covered a lot of ground today.

AI Podcaster 100:07:37

ARMs, extra payments, even a little AI for good measure. But remember…

AI Podcaster 200:07:43

This is just the beginning.

AI Podcaster 100:07:44

The world of finance is constantly changing.

AI Podcaster 200:07:47

So keep learning, keep asking questions.

AI Podcaster 100:07:50

And don’t be afraid to reach out to a professional if you need help navigating it all.

AI Podcaster 200:07:54

Couldn’t have said it better myself.

AI Podcaster 100:07:56

Until next time.

AI Podcaster 200:07:57

Happy investing everyone.