In the last few months, I have run into several scenarios where borrowers are looking to refinance their home and I simply tell them I don't think it makes sense. No, you don't have to re-read that sentence, you read it correctly. I turn away customers all the time because I don't think a refinance makes sense.
The real estate business and the mortgage business has been brutal over the last year. It has become more difficult every day to find programs for prospective clients. Why would a mortgage broker ever turn business away? The answer is a lot simpler than you may think.
Putting a borrower in a good loan is a very satisfying feeling. Knowing that a borrower has received a great rate along with excellent service is something all mortgage brokers should strive for. Taking the time to get to know borrowers and their situations allows qualified brokers to customize programs and products. There are occasions when borrowers have been scared into thinking they MUST refinance, and that is simply when a qualified broker will take the time to explain all options available.
Let me say this before you read any further. Some borrowers HAVE to refinance and do it quickly. A 3% jump in their interest rate and several hundreds of dollars a month in payments may cause financial difficulty for years to come. However, not everyone falls into this category.
Let me give you an example. Mr. Jones is in an adjustable rate mortgage at 5%. This loan is set to adjust in August of 2010. He has two more years before he sees an adjustment. Mr. Jones has read all of the negative press in the papers and sees daily about all of the big lenders tightening their qualifications. Mr. Jones is scared that his loan is going to adjust to a payment he cannot afford and he will lose his house. However, Mr. Jones has always paid his bills on time and his credit score is well above 700. He has a solid job history with a tremendous amount of security. Overall, his situation is fantastic, but he opted for the adjustable rate mortgage a few years ago and is now nervous that he made a bad decision. Time for Mr. Jones to grab a piece of paper, a calculator, and a pen and see where his break even point will be.
Mr. Jones currently has a 200,000 mortgage at 5%. His principal and interest payment is $1074 per month. If he gets out of his adjustable rate mortgage today and gets himself into a 6.25% rate, his new payment on a 30 year note will be $1231, and we are assuming he will bring ALL closing costs to the table. So in easy terms, his new payment will increase by $157 per month but he no longer has an adjustable rate mortgage.
Since Mr. Jones has good equity in his home and excellent credit, he has options. If he decides to stay in the loan for another year, he would have saved himself $1889 by taking advantage of the 5% rate, and he didn't need to withdraw several thousands of dollars from his savings account to cover closing costs. If he waits it out for another year, and rates jump to 7%, his payment is still only $1330. This is only $69 higher than he would have paid a year ago at 6.25%, but he took advantage of saving $1889 in the last 12 months. Mr. Jones is still ahead $1061! What if rates go down? Mr. Jones would feel pretty good then!
Another reason I turn borrowers away is because they don't truly understand their adjustable rate mortgages. Not all adjustable rates jump two or three percent after the initial period. It is shocking to see the number of customers scared that their mortgage payment will jump by several hundreds of dollars only to find out after a brief consultation that the payment may go down! Just because someone said adjustable rate mortgages are bad on a tv show doesn't mean every single one fits into that box. Borrowers need to read and understand their paperwork, and a good mortgage broker will help a borrower do this. Sometimes that means you tell a customer they should sit tight and wait.
Now, unless you know something I don't, there are no crystal balls that predict what is going to happen in the future. A new president, a weak dollar, oil prices soaring, lenders taking tremendous losses quarter after quarter, and on, and on, and on. Nobody can say for sure what is going to happen. However, taking the time to speak to a qualified mortgage broker and understanding what options are available may help you significantly. If your lucky, and you take the time to talk to a good mortgage consultant...they may just tell you to sit tight!
Comments(3)