I have a small apartment building in Baltimore Maryland that I have owned since March 2006. Because it is a 5 unit building, it falls under that dreaded categorization of a commercial loan. Rates are higher. Down payments are higher. The headaches are greater. I have had the same loan since 2006 and it was fixed for the first 10 years. Now it is an adjustable rate mortgage - and with the low interest rates we are all currently enjoying - I am loving the mortgage payment. However, I am rather like an elephant. I remember the 10% interest rates when I bought my first home in 1986 so I know that a great adjustable rate can turn into a nightmare in a heart beat. So.... I have started collecting information about refinancing my mortgage. I want to convert my wonderful low mortgage, which adjusts semi annually to a fixed rate mortgage - even if it is fixed at a higher rate - so that I don't have any unpleasant surprises.
If you’re someone who isn’t happy with their current mortgage—whether it’s because you heard of someone having a better rate, you realized the payments are too large or you want to pay your home off quicker, then you are like me. It’s time to look into a mortgage refinance.
Simply put, a mortgage refinance replaces your current home loan with a new one and can be done to reduce the interest rate, cut monthly payments or tap into the home’s equity. In my case, I am perversely willing to trade my low interest rate for a higher one that is locked in.
My son, who is a co-owner on this particular investment building, was after me two years ago to refinance - and was probably annoyed with me that I didn't work with a lender then. Happily, I think that interest rates have been pretty good for the last four years (since my fixed rate morphed into an adjustable rate) so I don't think I lost any money - but I am concerned that the gravy train we are all riding will run out soon.
If you are trying to figure out when you should refinance your mortgage, then that is the time to explore your options. There is no set time line for when you should refinance your mortgage. You don’t need to be years into a mortgage to refinance. If it makes sense financially, you can refinance at any time. Some people I know have refinanced their mortgage every two years or so as interest rates have continued downward over the past few years.
Still, there are some mistakes that those going through the process make. Here are some things to avoid.
1. Being Unprepared for the Process:
Once you get the ball rolling, don’t stall. If your new lender gets in touch asking for information, don’t waste time looking for documents and financial info—send it to them right away so everything goes smoothly. If you’re busy at work or about to embark on a family vacation, wait until you have opportune time to get things started. I know that you will start to think that the lender is going to ask for a cheek swab or your first born child. It isn't personal - and things are much more detailed than when you originally applied for your mortgage. Just roll with it - you want that lower mortgage rate.
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Jumping at the First Offer:
One of the reasons you’re looking to refinance is because you’re not happy with something - your rate, your term, your service. But even if the first lender that comes along offers you better rates, don’t just say yes. Shop around for the best deal, and even check in with your current lender to see if they can do something to make your mortgage more appealing. They might be willing to work with you, saving you some paperwork and time. -
Waiting too long:
If you hear about a good rate from a friend or see a special deal being promoted, do your due diligence but don’t wait too long before making a decision. Try to get everything done in a couple of days and check out as many lenders as possible. You don’t want rates to rise or something to change before you pull the trigger. -
Not Thinking About Closing Costs:
During any refinance, keep in mind that there will be new closing costs, including a loan application fee, appraisal fees, title fees and attorney’s fees. Be sure you have this money on hand and make sure that these new fees don’t impact the value you are getting overall from the refinance. Some lenders will magically make those disappear (I don't know where they go!) while others will add them to your total mortgage - so that you end up with a lower rate - but a higher principal balance. THAT IS NOT GOOD. When I refinanced my principal residence - it was a breeze. The lender rolled my mortgage balance into my new loan without increasing the amount owed. Even the appraisal was a driveby appraisal. The lender reduced my rate significantly - and gave me a 15 year mortgage. I was happy. Now that I am talking to a lender about refinancing a commercial property they are talking about closing costs - which could include a $5000 appraisal. Ask around. Shop around There is more than just the rate that you consider. -
Adding on to Loan Term:
When refinancing, some homeowners decide to add to the number of years of their loan term, lowering their monthly payments but increasing the total amount of interest over time. Conversely, lowering the terms by five or 10 years can save you a lot, so if you want to change the years, make it lower. I am looking at refinancing my investment property now that I am nearly 15 years into the payments. I will get a 15 year mortgage amortized over 15 years so I will not reduce the term or add to it - but I hope to lock in a fixed rate for those 15 years.
By making smart decisions, your refinancing can be a smooth experience.
