Business owners need to take the time to review their own personal finances and identify strategies that put them in a stronger position for retirement when that day comes, says Daniel Eshler, vice president and mortgage division manager at Consumers National Bank. It’s a step that can be easily forgotten in the midst of running a business.
“We’ll be working on a business transaction and a question will come up, ‘Did anybody ask about their mortgage?’” Eshler says. “You find out it’s at a much higher rate just because they never got around to refinancing it. There’s a lot of opportunity to provide assistance to clients on the mortgage side.”
The approach from a strategic standpoint is very similar to the way you would approach any other investment in your portfolio, whether it’s personal or business.
“You want to review your mortgage,” Eshler says. “How many years do you have left? Does it coincide with what you want to accomplish in your retirement? Is it time to upgrade or downgrade in terms of buying a new house or selling your current home?”
Smart Business spoke with Eshler about available options when it comes to refinancing your mortgage to boost your retirement savings.
What benefits can non-conventional portfolio lending provide business owners?
Business owners need options when it comes to mortgage financing. A non-conventional loan is a loan that may not conform to the secondary market guidelines set by Fannie Mae, Freddie Mac, Federal Housing Administration (FHA) or the U.S. Department of Veterans Affairs (VA). Many times, you have borrowers with strong credit and income, but they may have unique situations with another aspect of the loan that may not meet the exact requirements of a secondary market or sellable loan. For example, there may be a unique feature of the property such as the square footage of the home or the number of bedrooms and/or bathrooms that may be different than comparable properties that have recently sold. It’s also possible the property may have significant land value versus home value or may have additional out buildings.
Where is a good place to get started with a non-conventional portfolio lending strategy?
The strategy for a bank is to fully understand the goals and financials of each borrower. Most often the secondary market loans will offer the client the best rate and fixed terms. Therefore, when possible, the bank will start by analyzing income and credit to make sure the borrower properly qualifies for the loan. The bank’s residential mortgage department works closely with business development officers to determine the best solutions for a client’s lending needs based on several factors including: demographics of the loan, characteristics of the property and income cash flow.
What are some things to keep in mind that might help or hinder the benefits you get out of this strategy?
Whether it is a sellable loan or a portfolio loan, setting client expectations is critical for a successful transaction. By setting proper expectations for documentation of income, appraisal timeframes, processing, underwriting and closing, this helps clients understand the process of home financing. The easiest way to hinder the strategy is to not supply the documentation needed to make an informed decision.
How much of a factor is timing to make this strategy work?
It’s very important to hit closing/contract dates in purchase transactions as other loan transactions could be awaiting the close of a particular loan. Because rates and terms are typically most favorable for residential home loans, clients often use refinancing transactions for more than just the rate and term. They may refinance to purchase property, homes or for personal/business needs.
Timing the rate environment is also important in financing. Typically the pricing of mortgage rates changes daily and sometimes rates are more volatile than others, depending on current and world events. These days, rates are again at historic lows, so it’s not a bad time to refinance your home as part of your overall strategy as a business owner to reduce debt if you are nearing retirement or planning to sell your business in the near future.
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