What's up, guys? It is Tuesday the 20th, and a couple of things are going on right now in the market. In fact, what we're seeing is that the most significant news we've got happening is the housing starts are starting to slow down because building permits. There's not as many being filed as what we had seen happening, so that's starting to recede a little bit. However, they're continuing to build homes, so it's looking like just what analysts were talking about this morning that they're going to fulfill what they already have permits for, but there aren't as many permits being filed for new construction. So, I mean, we may see a slowdown as far as housing is concerned. Hard to say. I think it might have a lot to do with the supply chain. I can't speak to that directly because I don't have to talk to the builders, but that would make sense to me, you know, the supply chain issues that we're dealing with. It's also the cost of construction. It might not be that what they have to do to the prices does not justify what they've got to do there to be able to continue to sell houses. Just when you're trying to work out in your mind, right? The cost of construction is going so much higher than what they're going to be able to profit off of is what I'm guessing, just what I've seen the expense of things happening. So, who knows what's that? What's going to happen with that? That could also continue to increase the price of housing just because the supply is going to shrink a little bit potentially.

But if housing permits are an indicator, then we're going to start seeing some of that supply being weakened a little bit or at least supply shrinking, therefore the demand is going to continue to increase. Therefore, we're going to continue to see high prices on that.

So, what we've got going on in the mortgage-backed securities market, let me show you what we're basically tracking when it comes to, this is more for your owner-occupied stuff, right? So, we talk a lot about that because right now I can't really guess where we're going to go with the investor stuff, which is doing pretty well. It's holding its own, so I'm not worried about that. Owner-occupied stuff, we're seeing how, remember we were talking before about getting squeezed out of this particular, at this point in the channel, and then we got shoved up above it. I mean, we're in really good shape, but it's not going to be long. We're going to hit the top of that, and we're probably going to be in this particular trading range. Now, we'd have to drop below it for it to get negative for us, but what does that mean? That means more lower rates for people owning their own home and looking to get refinances or purchasing homes, that kind of stuff. So, your owner-occupied stuff, 93% of the market, depending on what you're doing, could see lower rates coming.

Well, we are seeing lower rates coming, and this is where it was at its lowest back here in recent months. So, what does that mean? So, I've got to talk to you guys about this refinancing your home because rates are going down. So, I'm going to show you some other stuff that I crunched here, and it's going to be a lot of numbers to take a look at, and it's not really well presented here, but I wanted to show you that even at a higher interest rate, people really get wrapped up in interest rates. They want to drop their loan, drop the rate on their home to save money, and it seems to be a pretty consistent thing, and why is that? Well, the banking industry is pushing for this, right? So, if you look at an amortization table on a 30-year fixed, you're going to see in the first five years that there's very little going to principle. A lot of it going towards interest.

So, what I'm showing here is what I have seen in my career. I'm not saying that this is gospel truth. This is just what I've recognized is that as I have been doing this since 1997, it seems like every four to five years we got a refi bill. Now is the time to refinance your home. Well, if you're looking at a 30-year amortization table, you're going to see in those first five years very, very little going to principle because there's so much that you borrow. That's where you're at. You're the peak of what you borrow. You barely even start paying anything in the form of principle on it because you have all the interest being due on that larger loan amount.

So, as a result of that, let's just say you refinance. You bought a property for a hundred thousand. This is for investors, of course. An eighty thousand dollar loan, and let's just go off of the six percent rate. The reason I go off of six percent is because I'm going back to when I started in my career when really things started to take off between things went below seven percent back in 1998. So, let's just say six percent. You get an eighty thousand dollar loan at four hundred and seventy-eight dollars, $479.64 per month. So, if you stayed in that loan for 20 years, you just kept paying on that six percent deal for 20 years, you'll owe $43,202.97. That's what that is going to be over on a 30-year loan, paying for 20 years.

But now let's say you refinance between every four and six years up to that year 20. Well, if you refinance year four to drop one percent because that's what the industry tells you. If you get dropped one percent, you're going to kick ass, right? Well, you dropped one percent from six percent to five percent. Your principal and interest payment is $430.49 a month. Now you're going to have some cost, right? So, you've paid down the principal from eighty thousand to seventy-five thousand six hundred ninety-one dollars, but you're going to have about 4,500 bucks you're going to add to the loan. Well, that drives your balance up to $80,000, $192, more than what you owe. Now that's not an exact science because depending upon the timing of that, you may have a full month's worth of interest that could be another 400 bucks. It could be $80,500. But we're going to take the more conservative approach of exactly what you would have shown on your amortization table, which is $80,192, not adding any daily interest that you didn't pay because the next payment would cover that. It's always paid in arrears.

So, that means over a five-year window, for the next five years, you did a refinance on year four, you're going to refinance again in year 9, this is the pattern that you’re being marketed to, so you’re going to between year 4 and year 9 (5 years) $2,949 in lower payment over that period of time. So, you refi year nine, so five years later, and you drop another one percent. Like, you know, all the lenders out there tell you to drop one percent. Now your payoff at that point would have been seventy-three thousand six thirty-nine, but add 4,500 back into it. You're now seventy-eight thousand one thirty-nine point one, barely below what you started at, right? Less than two thousand. You're, you know, twenty-eight hundred and change lower than where you start your eighty thousand dollar loan, right? But you're saving now a hundred and four, five hundred four dollars and fifty-nine cents a month over your original $479 a month payment.

So, over six years, you're going to save seventy-five hundred and thirty dollars and forty-eight cents. That seems really sexy, right? Excuse me, over the next six years, yeah, six years because let's say you held out till year 15 to refinance in the next one. So, six years later, you save this much. So, from year 15 to your 20, that's five years. You're saving ten grand over that additional five years, right? Thinking this is awesome because you're going to refinance again in year 20.

You're 15 to your 20, that's five years. You're saving ten grand. So, your balance on your year 20, if you don't refinance yet, just your 20 rolls over, you're going to have $65,785.51 balance. But if you refi year 20, right, you're going to do that 4-3-5-6. Now it's another time to refi that, you know, the marketing's coming. You're going to take that balance, $65,785.51, you're going to drop your interest rate down for that one percent again. You're going to have a seventy thousand two hundred eighty-five dollar balance right because you added that $4,500 bucks. So, you're asking, it's like, why is that a bad thing? Look at all the money I'm saving. Well, let's get to the guy who just paid on the loan, right? Forty-three thousand two hundred two bucks. Sure, you saved that money. Total savings over two after two years of lower payments at one percent per year is equal to twenty thousand five hundred forty dollars and twenty-eight dollars and twenty cents in actual savings over that period of time, right? And the difference in the balance of those refi is $22,582 and fifty-four cents for a total loss. You lost two thousand forty-two dollars and twenty-six cents. Sure, you saved twenty grand, but then you add in the costs on top of that. You actually lost money. Two thousand forty-two dollars, the total balance difference for the fourth refinance differential is a twenty-seven thousand dollar difference. So, it's only just the third refi you lost two thousand bucks by doing all these refis instead of staying in the loan.

If you did your fourth refi, it's going to go up another four 4,500 bucks. Your total loss is 6,000. In my opinion, Aaron Chapman's opinion, it does not pay to do your refinancing just for the interest rate. So, why do I talk about this now? I talk about that because the interest rates are dropping. It looks like for your owner-occupied stuff. If you're going to do it, be sure you're pulling cash out. If you're going to pull cash out, be sure you're putting that into something that's going to make money. They're going to buy more investment properties, prep you up for your future. Look at the infinite banking strategy, a lot of different ways to be able to build your capital. But don't do it for the rate. I'm serious here. I'm showing you the numbers. Now, is this a perfect science? No, because there's a lot of things going into it. I was trying to take the baseline numbers. I could be wrong somewhere in there, but ultimately, from what I'm seeing and the numbers I ran two or three times to be sure that I'm not getting out here on the internet looking like an idiot, it doesn't look to me that it works out in your best interest. It feels good, and that's what this is all about, is making you feel good, put your head on the pillow at night thinking you kicked ass. I'm not seeing that you did. So, want to talk about it more? You've got some things to share. Please reach out to me, go to aaronchapman.com, and let's schedule some time to talk. Thank you, guys, and we'll talk to you on Friday.

https://www.youtube.com/watch?v=95Yio6tj3ug

1. Housing Market Trends:
   • Slowing Housing Starts: A notable reduction in housing starts is observed, attributed to a decrease in the filing of building permits.
   • Continued Construction: Despite the slowdown, ongoing construction activities are fulfilling existing permit obligations.
   • Possible Causes: Supply chain issues and rising construction costs are speculated to be contributing factors.
   • Impact on Housing Prices: A potential decrease in supply, coupled with ongoing demand, could lead to sustained high housing prices.

Mortgage-Backed Securities Market Analysis:

1. Owner-Occupied Properties:
   • Market Position: The segment is in a strong position, with a likelihood of hitting the upper trading range soon.
   • Implications: This trend indicates potential for lower mortgage rates for owner-occupied properties, which comprise 93% of the market.

Refinancing Analysis:

1. Interest Rate Focus:
   • Industry Push: The banking industry heavily markets the idea of lowering interest rates through refinancing.
   • Amortization Reality: In the initial years of a 30-year fixed mortgage, payments are predominantly interest-based, with minimal principal reduction.
2. Case Study: Refinancing Impact Over 20 Years:
   • Initial Loan: $80,000 at 6% interest, leading to a monthly payment of $479.64.
   • Scenario 1 - No Refinancing: After 20 years, the remaining balance is $43,202.97.
   • Scenario 2 - Periodic Refinancing: Refinancing every 4 to 6 years to reduce interest by 1% each time.
     • Year 4 Refinance: New balance becomes $80,192 (including costs).
     • Year 9 Refinance: Balance slightly drops, savings of $7,530.48 over six years.
     • Year 15 Refinance: Additional savings of $10,000 over five years, with a balance of $65,785.51.
     • Year 20 Refinance: Balance increases to $70,285, with potential savings of $20,540.28 over 20 years.
3. Financial Loss Despite Refinancing:
   • Despite apparent savings from lower payments, the total loss after the third refinance is $2,042.26, considering the balance differential and refinancing costs.
   • After the fourth refinance, the total loss increases to approximately $6,000.

Conclusion and Advice for Investors:

1. Refrain from Refinancing for Rate Alone: The presenter, Aaron Chapman, advises against refinancing solely for interest rate reduction, as the long-term financial impact may not be favorable.
2. Alternative Strategies:
   • Cash-Out Refinancing: If refinancing, consider pulling out cash for investments that yield returns.
   • Infinite Banking Strategy: Explore avenues like the infinite banking strategy to build capital.
3. Personal Insight: Chapman emphasizes the importance of making informed decisions, not just ones that feel good in the short term.

Invitation for Further Discussion:

1. Chapman encourages viewers to engage in further discussion on this topic and offers his contact information for scheduling consultations.

The Basic Concept of Refinancing:

Refinancing a mortgage typically involves taking a new loan to pay off an existing one. People often refinance to take advantage of lower interest rates, which can reduce monthly payments or shorten the loan term. However, refinancing also involves costs and can extend the time it takes to pay off your home.

Understanding the Math with an Example:

Let’s use the details provided in your summary to understand the calculations:

1. Initial Mortgage Details:
   • Original Loan Amount: $80,000
   • Interest Rate: 6%
   • Monthly Payment: $479.64
   • Loan Term: 30 years (360 months)
2. Refinancing Scenario:
   • Refinancing every 4 to 6 years to reduce the interest rate by 1% each time.

The Impact of Refinancing:

1. First Refinance (Year 4):
   • New Interest Rate: 5%
   • New Loan Amount: Slightly higher than the original due to refinancing costs (around $80,192).
   • Monthly Payment: Reduced to $430.49 (from $479.64)
   • Savings: Lower monthly payments, but the loan amount increases due to refinancing costs.
2. Subsequent Refinances (Years 9, 15, 20):
   • Continuing the pattern of reducing the interest rate by 1% every refinance.
   • Each refinance adds additional costs to the loan balance.
   • Though monthly payments decrease, the overall loan balance remains high due to repeated refinancing.

Where the Math Gets Tricky:

1. Savings on Monthly Payments:
   • Each refinance lowers the monthly payment, which seems like saving money in the short term.
2. Costs of Refinancing:
   • Refinancing isn't free. Costs include application fees, appraisal fees, closing costs, etc.
   • These costs are often rolled into the new loan, increasing the total loan amount.
3. Extended Loan Term:
   • Each time you refinance, the loan term might reset to 30 years (unless you choose a shorter term). This means you could be paying off your home for longer than initially planned.
4. Interest Paid Over Time:
   • While the monthly payment is lower, you may end up paying more interest over the extended life of the loan.

Conclusion:

• Short-Term vs. Long-Term Impact: While refinancing can lower your monthly payments, it can also extend the duration of debt and increase the total amount paid due to added costs and potentially more interest over time.
• Total Loan Balance: Even though your monthly payments are lower, the actual amount you owe might not decrease significantly due to the added costs of refinancing.

Why Refinancing Might Not Always Save Money:

1. Initial Loan Scenario:
   • Loan Amount: $80,000
   • Interest Rate: 6%
   • Monthly Payment: Approximately $479.64
2. Refinancing in Year 4:
   • New Interest Rate: Reduced to 5%
   • Refinancing Costs: Approximately $4,500
   • New Loan Amount: Original balance + Refinancing costs. Suppose it's $80,192.
   • New Monthly Payment: Reduced, let's say to $430.49
   • Savings: You save on the monthly payment, but your overall loan balance increases due to refinancing costs.
3. Impact of Refinancing:
   • When you refinance, your monthly payment decreases, which seems beneficial initially.
   • However, refinancing costs are often rolled into the new loan, increasing the total loan amount.
   • Even though your monthly payment is lower, the actual amount you owe might not decrease significantly, or it might even increase.
4. Continued Refinancing:
   • If you continue to refinance every few years to take advantage of lower rates, you repeatedly incur refinancing costs.
   • Each time you refinance, the loan term might reset to 30 years, unless you opt for a shorter term. This means you could end up paying off your home for a longer period than initially planned.
5. Overall Financial Impact:
   • Despite lower monthly payments, the total amount of interest paid over the life of the loan may increase due to the extended term.
   • The frequent addition of refinancing costs to the loan balance can lead to a higher total debt over time.

The Bottom Line:

Refinancing can be beneficial in certain situations, especially if it significantly reduces your interest rate, you plan to stay in your home long enough to recoup the costs, or you switch from an adjustable-rate to a fixed-rate mortgage. However, it's crucial to consider the long-term financial impact, not just the immediate reduction in monthly payments. Frequent refinancing, particularly without a substantial drop in interest rates, might lead to more costs in the long run than simply sticking with the original loan.

In New Jersey, as in other states, refinancing does not automatically mean extending the loan term to another 30 years, although it is a common option. Refinancing simply means replacing your existing mortgage with a new one, and this new mortgage can have a variety of terms depending on what you choose. Here's a detailed look at how it works:

1. Standard Refinancing to a New 30-Year Mortgage:
   • Most Common Scenario: Often, homeowners opt for a new 30-year mortgage when they refinance. This can be because they want the lowest possible monthly payment, which is achieved by spreading the repayment over a long period.
   • Effect on Loan Duration: If you've been paying your original mortgage for, say, 10 years and then refinance to a new 30-year loan, you effectively reset the clock, and your total mortgage duration could extend to 40 years (10 years of your original mortgage plus 30 years of the new one).
2. Refinancing to a Shorter-Term Mortgage:
   • Options Available: You're not restricted to a 30-year term. You can choose a shorter term, such as 15 or 20 years, when you refinance.
   • Impact on Monthly Payments: Shorter-term mortgages typically have higher monthly payments but can save you money on interest over the life of the loan.
   • Loan Duration: If you've been paying a 30-year mortgage for 10 years and refinance to a 15-year mortgage, you'll be mortgage-free in 25 years total, assuming you don't refinance again.
3. Refinancing with the Same Remaining Term:
   • Custom Terms: Some lenders offer the option to refinance for the remaining term of your original mortgage. For example, if you have 20 years left on your original mortgage, you can refinance to a new 20-year loan.
   • Purpose: This option is often chosen to reduce the interest rate without affecting the loan's payoff date.
4. Variable Factors:
   • Interest Rates: The primary reason to refinance is usually to secure a lower interest rate, which can lead to lower monthly payments, less total interest paid, or both.
   • Closing Costs: Refinancing typically involves closing costs, which can be substantial. It’s important to calculate whether the savings from refinancing outweigh these costs.
   • Financial Goals: Your decision on the term should align with your financial goals. If your aim is to lower monthly expenses, a longer term might be preferable. If you want to pay off your mortgage faster and save on interest, a shorter term is better.
5. State-Specific Considerations:

In summary, when you refinance in New Jersey or any other state, you have the flexibility to choose a new loan term that suits your financial goals. It’s not a one-size-fits-all decision, and careful