As my years in portfolio management and financial planning for family, friends, and clients have grown, my experience in understanding their unique core values has vastly broadened. Core values guide an individual’s life and help shape behavior, words, and actions. When working alongside a client, it is essential to take stock of the personal values that create an environment for them to live authentically. While highly subjective, personal values influence preferences and ultimately behaviors.

Not long ago, I had a situation in which some friends could not balance their monthly budget and asked me to help them out. We sat together and reviewed their cash inflows and outflows. The couple were in a net deficit and desperate for an option to lighten their monthly outflow. In March 2021, the couple obtained a 30-year fixed-rate mortgage on a dream home. Fortunately, this was during a low interest rate period and the couple secured a 2.85% interest rate. Along with their ideal home came a white picket fence that needed maintenance and many other unforeseen expenses. The couple also had two children who were attending private school, had car payments, and tithed to their church.

To show enough liquidity and defend the bid on their new home, the couple had withdrawn a large amount from the husband’s retirement savings account without professional consultation. The funds were then deposited in a separate savings account. While the withdrawal also allowed them to secure a mortgage, it put them in a bit of a bind with an unexpectedly large tax bill. The couple did not realize that even though they had withheld taxes from the distribution, it pushed them into a new and higher tax bracket.

This is where recognizing core values came into the equation. As part of their faith, the couple had strong feelings about not accumulating large amounts of debt and keeping their children in a private school was paramount. The stress of the net cash outflows was building, and their painstakingly built emergency fund had been quickly depleting. Given the couple’s uneasiness with adding additional debt to bring down their payments, we decided to see if the entity that held their mortgage would facilitate a mortgage recast.

A mortgage recast is a potential option for someone who has monthly cash flow issues. The recast would allow a borrower to keep an original loan with the same lender along with the same terms rather than refinancing the loan which would change the terms of the mortgage. In this case, the terms of the original loan were crucial because the Federal Reserve had been raising interest rates and a new loan at current rates with higher payments would have never been feasible for this couple’s situation and core values. The recast reduced their monthly deficit significantly by taking the lump sum from the retirement plan and using it to directly pay down the principal of the mortgage. The couple kept the “same” loan, yet now a large portion of the principal balance was reduced. Their monthly payment was now substantially lower and more manageable as the loan was re-amortized with a new lower balance. Another benefit was the cost to the couple was only a $500 administration fee.

Knowing the couple did not want to incur additional debt, the recast mortgage provided a solution to their financial concern and peace of mind that relieved significant financial stress. They were now able to cover all their monthly expenses with their cash inflow and considered it a blessing.

Your Greenleaf Trust client centric team is here to assist and guide you to achieve your goals while recognizing your core values. In this case, the solution is not always the known path, sometimes it takes a recasting to find the right solution.