By now, the phone calls and junk mail are coming from lenders you’ve never heard of. Your loan servicing company is leaving messages. Sponsored ads are popping up all over your web-browser and social-media platforms daily. Post cards are disguised as coming from your original lender, but in the small print at the bottom, there’s another company’s 1-800 # to call.
When rates fall, there seems to be no scruples. Some lenders solicit you with promises of quick savings, but may actually be sticking you with more debt in the long-run.
Here are a few things to consider before refinancing your mortgage:
- Know your Goals!
Knowing your goals is the first step to knowing whether refinancing your mortgage is “worth it”. Are you looking for a better rate/payment? Are you trying to remove mortgage insurance? Shorten the term of your loan? Do you need cash-out for home improvements, debt consolidation, or investing in other properties? Are you trying to remove someone else from the loan and/or title (i.e. divorce situation)?
Having a clear idea of what you’re trying to accomplish makes it easier to find the right solution. There needs to be tangible benefits to justify restructuring your biggest debt, resetting the mortgage, and incurring the costs. With my clients, we always look for short and long-term benefits, and skipping the next payment isn’t one of them. Sometimes, there may be less expensive alternatives than refinancing to accomplish the same goals.
- Do the Costs Justify the Savings?
The majority of homeowners are simply looking to lower their payment when refinancing. If that’s the case, you can use a simple calculation to see if it makes sense — take the sum of the closing costs and divide it by the monthly savings. I use this math to find the ‘break-even’ point, or how long you’d need to make the new payment to recover the costs of the initial investment. Usually, we want that ‘break-even’ period to be no more than 24-36 months. Studies show that most homeowners are out of their loan and/or house in just over 4 years anyway. If it takes longer to make up what you incurred in costs, or if you’re looking to sell the home soon, you may want to rethink the refinance.
- Does your Loan Officer have your best-interests in mind?
When a lender is selling the “best rate” in town, there’s usually not much else to offer. How long has this loan officer been in the business? How many times will your loan get handed off once you sign papers? Is your loan officer asking about your future plans to understand your complete financial picture, or are they insistent on highlighting monthly savings without taking any ramifications into account?
There are many documented stories where homeowners start out looking online, or maybe they receive a call one afternoon and decide to give it a shot. Everything sounds so good at first, and then the horror show starts. Appraisers are coming from out of town, you’re asked to resend documents over and over, and then right around the time of your scheduled settlement date, you find out you’re not able to close. The original Loan Officer who started the loan can’t be reached, and all this comes after a credit inquiry, appraisal fee, and so much time and energy wasted. The golden rate that was offered at the beginning goes unrealized. I usually get the call after. I’ve seen the movie many times.
So as rates fall and refinancing is on the mind, figure out your goals first. Do the math, and make sure your loan officer is asking the right questions concerning your long-term financial health. And remember, if it’s too good to be true, watch out.
Recent Reviews Posted on Zillow:
I wanted to take advantage of low rates. I didn’t want to have to jump through a bunch of hoops, or have the Refi be a hassle. It was the easiest Refi experience ever. Jeff Halbert made this happen. Thanks Jeff. —Ronnie K.
Jeff has helped me refinance my mortgage for more than once since 2001. Whenever I consulted him with my financial plan, he has provided me with an honest and unbiased opinion. As he has been very trustful, I will undoubtedly contact him again whenever I need his professional opinion. –-Hiroshi S.
I trust Jeff with my life! I’m so happy we got to work together!! Fast, thorough, and friendly service! Smart and has an awesome team working with him to get the job done!!! —Janine G.