Keep Your Goals in Mind When Refinancing!
Don't be taken advantage of by an "Eager Beaver" Loan Officer.
I attended a Wine, Women and Wealth meeting last Tuesday night and the topic was mortgages. My friend and colleague, Erin Zasada (Financial Advisor at Wachovia/Wells Fargo) gave me the floor. Yikes!
Normally I would be all over the topic and ready and willing to give pointers and help in any way I can, but with the current economic climate, people are filled with worry and doubt. To my pleasant surprise, the ladies had a mountain of questions and it was a great time to re-enforce the positive, dispel the negative, reflect on the what's happening in today's market and, of course, drink some wine ;)
One question, which I love to get, was "How can I pay down my mortgage? I have a 30 year and want to pay it off in 15 years."
After corresponding via e-mail over the last few days, this is what I was able to outline for her:
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Current rate on 30 year fixed:
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6.250%
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Current Principal and Interest Payment:
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$1,650.13
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Additional Principal Needed to cut loan to 15 years:
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$647.76 per month!
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TOTAL payment needed to cut loan to 15 year:
(excluding taxes & insurance)
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$2,297.89
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Savings, if she were able to make additional payment each and EVERY month:
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$297,023.40
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Now, in interest of full disclosure, I am in the mortgage business. I wanted to see if I was able, at all, to assist her in achieving her goals and earn a paycheck at the same time. I was able to come up with the following (it's a 2 step plan, only one involving me):
* * * * * * *
The Action Plan - Refinance into new 30 year, Fixed rate (Step 1):
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New Interest Rate:
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5.125%
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New Principal Balance:
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$270,000.00
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New Principal & Interest Payment:
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$1,470.12
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* * * * * * *
The Action Plan - Increase her monthly payment (Step 2):
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Payment she will make:
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$1,650.13
(what she pays now)
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$1,700.13
(what she pays now + $50)
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Term reduced by:
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78 months
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93 months
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Total savings over life of loan:
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$128,710.14
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$153,462.09
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* * * * * * *
Now, if she wanted to take this new loan and pay it off in 15 years, the payment she would need to make would be just shy of the payment she would need to make with the loan she has now. So, it would be a waste of her time and resources to refinance. So, I called her and asked what her "real" goal was:
- to pay the loan down in 15 years?
- to save some money in the long run (albeit not as much as the chart above clearly shows), but leave her payment where it is now?
She agreed that, although it would be nice pay her house off in 15 years, making an additional $647.76 each and every month is out of the question. She was happy with the options I laid out for her and we are closing her loan in a couple of weeks.
So, remember that when you are refinancing, you need to keep your REAL goal(s) in mind. It may not be possible to do everything you want, but by using a professional who has the same goals in mind, you are ahead of the game.
If you want an honest assessment of whether refinancing is a good option for you, please give us a call at KMG Mortgage Group. We will be happy to assist you, even if it means we don't close on a loan for you.
Best regards!
Maryellen Garasky
Mortgage Broker
KMG Mortgage Group
(208) 664-3600
(509) 638-3455
www.kmgmortgagegroup.com
;)
;)
Your story brings up an interesting point, that being a good sales/customer service person involves not only listening to your customer, but determining what it is they really want and are trying to achieve. In this case, while the woman may have thought she wanted to pay the loan off in 15 years, she really had no idea that it was not feasible.
BTW - I prefer the above method of paying down the mortgage rather than locking into one with a lower term. This is much more flexible.