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If a Mortgage Lender Reaches Out to You, Reach Out to Other Lenders

Posted on November 9th, 2020

A lot of homeowners are looking to refinance their mortgages at the moment. That’s abundantly clear based on the record volume of refis expected this year, per the MBA.

And while mortgage rates are in record low territory, thus making the decision to refinance an easy one for most, it still pays to shop around.

I think we all have a tendency to care less about prices when something is on sale, but there’s no reason you shouldn’t strive for even better, regardless of how cheap something is.

Look Beyond Your Current Mortgage Lender

  • New technology is making it easier for lenders to improve borrower retention rates
  • This means using the same lender for life even if their interest rates aren’t the lowest
  • But like most things loyalty often doesn’t pay when it comes to a home loan
  • So take the time to shop around and negotiate like you would anything else

Thanks to emerging technology, it has become easier for mortgage lenders, mortgage brokers, and loan officers to improve their customer retention.

This means if and when a past customer looks to refinance their home loan or purchase a new home, they might be notified if they pay for such services.

There are companies that can keep an eye on your data over time to see if you’ve applied for a home loan elsewhere, if your home equity has increased, or if your debt load has gone up.

The same goes for your credit score, which if it’s improved enough, may prompt a call or email from a lender or broker you worked with in the past.

While this in and of itself isn’t necessarily a bad thing (sure, data collection is getting a little aggressive), it’s how you react to the sales pitch if and when it comes your way.

Ultimately, if you receive an inbound call or email regarding a mortgage refinance, HELOC inquiry, or even a referral from a friend or family member, don’t stop there.

They are just one of the many individuals/companies you should contact and consider before finalizing your home loan decision.

What If You Receive a Mortgage Mailer?

  • Consider an inbound solicitation a starting point if you’re considering a refinance
  • Don’t simply call the individual/company back and call it a day because they can offer a low rate
  • There are hundreds of mortgage companies out there and competition is fierce
  • Your mortgage will be paid for decades so every little bit matters if you care about saving money

I get mortgage solicitations all the time – and they’re often from a broker, lender, or loan servicer I worked with in the past.

They’re certainly appealing, don’t me wrong. Who doesn’t want to save potentially hundreds a month for simply redoing their home loan, especially if it’s from a trusted source?

But why stop at that mailer? Why not use that as a stepping stone to reach out to other lenders and get additional pricing and offers, then make your decision?

When we’re talking about something as important as a mortgage, which you pay each month for decades, the price you pay matters.

And even a small difference of say an eighth of a percent can equate to thousands of dollars over the life of the loan term.

As noted, companies are getting smarter every day when it comes to customer retention. Unfortunately, a customer retained is likely to miss out on even bigger savings elsewhere.

Don’t simply take the path of least resistance. Put in the time and you should save money.

This is even more critical for low-credit score borrowers, as a wider range of mortgage rates are quoted for those with lower scores.

But all homeowners can benefit from multiple mortgage quotes, as pointed out in a survey from Freddie Mac.

Those who gather just one additional mortgage quote can save between $966 and $2,086 over the life of the home loan, while those who take the time to get 5+ can save nearly $3,000.

So while your old company may make it easy for you to refi, you might be better served looking someplace else.

Read more: Mortgage Rate Shopping: 10 Tips to Get a Better Deal

Don't let today's rates get away.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

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Watch Out for Low Mortgage Rates You Have to Pay For

Posted on November 4th, 2020

Mortgage rates keep on marching lower and lower, with new records broken seemingly every week.

But with all the fervor surrounding mortgage rates, some lenders are playing the “how low can we appear to go” game.

For example, mortgage lenders may be talking about their lowest rates (with multiple points required), as opposed to offering their par rates, the latter coming at no extra cost to the consumer.

So instead of being presented with a mortgage rate of say 2.75% on a 30-year fixed, you may see a rate as low as 1.99%. Or even a 15-year fixed at 1.75%!

Here’s the problem; with mortgage rates breaking record lows time and time again, 10+ times so far in 2020, many homeowners are finding the need to refinance the mortgage twice. Or even three times.

And those who chose to pay points at closing, only to refinance within months or a year, essentially left money on the table.

Or they decide not to refinance to an even lower rate, knowing they’ll lose that upfront cost that’s already been paid, which is also a tough situation.

Mortgage Rates Aren’t as Low as They Appear

  • In order to advertise lower mortgage rates lower than the competition
  • Lenders will often tack on discount points to their publicized rates
  • Meaning you’ll have to pay a certain amount upfront to obtain the low rate in question
  • Make sure you’re actually comparing apples to apple when mortgage rate shopping

Guess what? That absurdly low mortgage rate you saw advertised isn’t really as low as it seems.

Typically, when you see a rate that’s beating the pants off the national average, and all other lenders, mortgage points must be paid.

And when the rate is really, really low, it usually means multiple mortgage points must be paid.

In other words, you wind up paying a substantial amount of money, known as prepaid interest, to secure an ultra low, below-market interest rate.

Assuming your loan amount is $200,000, two points to obtain a rate of 1.99% on a 30-year fixed would set you back $4,000.

If the loan amount were $400,000, we’re talking $8,000 upfront to secure that super awesome low rate.

Tip: Watch out for lenders and mortgage brokers who quote you a low mortgage rate, but neglect to tell you that you must pay a point (or two) upfront to obtain it.

Often, this tactic is employed to snag your business, and once you’re committed, the truth comes out, which is why mortgage APR is so important.

Is Paying for an Even Lower Mortgage Rate Right Now the Smart Move?

  • When mortgage rates are already really low (record lows at the moment)
  • It becomes somewhat less attractive to pay points at closing
  • It could be pretty expensive to get just a slightly lower rate that will save you very little
  • And your money might be better served elsewhere, especially if inflation worsens

Here’s the thing. Mortgage rates are already so low that paying mortgage discount points to go even lower isn’t all that attractive.

There’s a great chance mortgage rates will surge higher in the future as inflation finally rears its ugly head. And at that point, you’ll already have an insanely low interest rate.

On top of that, you’ll be able to invest your liquid assets in other high-yielding accounts, likely something pretty darn safe with a rate of return that will beat your low mortgage rate.

So why keep going lower and lower if you’re already paying next to nothing on your home loan?

Additionally, you won’t want to spread yourself too thin, especially if you’re buying a new house.

There are a ton of costs associated with a new home purchase, so committing all your liquidity to an even lower rate could mean that you won’t have money for relocation costs, furnishings, necessary repairs, or an upgrade.

And as mentioned, mortgage rates do have the potential to move even lower than current levels, meaning it could make sense to refinance again, favoring those who didn’t pay much to anything at closing.

Or better yet, just went with a no cost refinance to avoid paying anything to the bank or lender.

As always, do the math to see what makes sense for you. If you’re super serious about paying off your mortgage early, then buying down your rate could be the right move.

It will certainly vary based on your unique financial situation, the loan amount, the cost to buy down the rate, and how long you plan to stay with the loan/home.

Certainly take the time to compare mortgage rates with and without points, but don’t just chase a low rate below an emotional threshold, like 2%.

And determine how long it’ll take to pay back any points at closing with regular monthly mortgage payments.

Personally, locking in a 30-year fixed rate below 3% seems like a tremendous bargain.

Investing the money elsewhere, such as in stocks or bonds or wherever else, could end up being a lot more rewarding than paying prepaid interest at closing.

Perhaps more importantly, you’ll have access to that money if and when necessary for more pressing matters.

Lastly, you can always pay extra each month if and when you choose to reduce your principal balance and total interest paid. So that’s always an option regardless of the rate you wind up with.

Read more: Are mortgage points worth the cost?

Don't let today's rates get away.

Source: thetruthaboutmortgage.com

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When to Refinance a Home Mortgage: Now, Later, or Never?

Posted on October 28th, 2020

Mortgage Q&A: “When to refinance a home mortgage.”

With mortgage rates at or near record lows, you may be wondering if now is a good time to refinance. Heck, your neighbors just did and now they’re bragging about their shiny new low rate.

The popular 30-year fixed-rate mortgage slipped to 2.80% last week, per Freddie Mac, well below the 3.75% average seen a year ago, and much better than the 4-6% range seen years earlier.

Historically, mortgage interest rates have never been lower, making a mortgage refinance a veritable no-brainer for many homeowners out there.

In other words, there’s a good chance you won’t be holding off from refinancing because interest rates are too high (unless you just recently refinanced).

But even if you did, there’s a possibility it could make sense to refinance a second time.

Should I Refinance My Mortgage Now?

should i refinance

  • Consider your current interest rate relative to today’s available rates
  • Along with required closing costs and how long it will take to break even
  • Think about how long you plan to keep the mortgage/property
  • And any other factors like removing mortgage insurance or shortening your loan term

Well, the answer to that question depends on a number of factors that will be unique to you and only you.

First, what is the interest rate on your existing mortgage(s)? Is it higher or lower than current mortgage rates?

If it’s higher, how much higher? If it’s lower, is your current loan adjustable? Or do you want to refinance for another reason, perhaps to tap equity?

Once you’ve got those basic questions answered, let’s talk about the new loan. What will the rate and closing costs be on the new mortgage?

Have you started shopping rates yet? Do you even know if you qualify?

How long do you plan to keep this new mortgage? What about the house? Are you sticking around for a while?

Assuming you’re still here, it might be a good time to take a look at a common scenario to illustrate the potential savings of a refinance.

Let’s look at a quick home refinance example:

Loan amount: $200,000
Current mortgage rate: 4.25% 30-year fixed
Refinance rate: 2.75% 30-year fixed
Closing costs: $2,500

The monthly mortgage payment on your current mortgage (including just principal and interest) would be roughly $984, while the refinanced rate of 2.75% would carry a monthly P&I payment of about $816.

That equates to savings of roughly $168 a month if you were to refinance. Not bad. But we aren’t done yet.

Now assuming your closing costs were $2,500 to complete the refinance, you’d be looking at about 14 months of payments, give or take, before you broke even and started saving yourself some money.

Yes, you need to consider the cost of the refinance too…

So if you happened to refinance again or sold your home during that window, refinancing wouldn’t make a lot of sense.

In fact, you’d actually lose money and any time you spent refinancing your mortgage would be wasted as well.

But if you plan to stay in the home (and with the mortgage) for many years to come, the savings could be substantial. Just imagine saving $168 for 200 months or longer.

This “break-even” point is key to making your decision, at least financially speaking.

You also need to consider whether it makes sense to buy down your interest rate by paying points, which will increase the time to this break-even point.

For example, those who paid upfront points on their refinance a year ago might be kicking themselves, knowing they’ll benefit from a subsequent refinance thanks to today’s even lower rates.

So sit down and determine your future housing plans before you decide to refinance to determine if it’s the right move.

If you don’t know what your plan is for at least the next few years, you may want to hold off until you do.

[The refinance rule of thumb.]

How Long Have You Had Your Existing Mortgage?

when to refinance

  • You also have to consider how long you’ve had your current home loan
  • This can play a big role in determining whether a refinance makes sense
  • Take note of how much it has been paid down since that time
  • And how much of each payment is going toward interest

Here’s another consideration. If you’ve already paid down your mortgage substantially, it might not make sense to refinance, assuming you want to pay the thing off.

Even if rates are super low, as there’s a good chance you’ll pay more interest overall if you “reset the clock” and start your full loan term over again. But this isn’t always the case.

To determine if a refinance is still the right move, get your hands on an amortization calculator.

That way you can see what you’ll pay in interest if you keep your mortgage intact versus what you’ll pay in interest with the new mortgage, factoring in what you’ve already paid on the old mortgage.

You can also use my refinance calculator to plug in all the pertinent numbers, including what we discussed above, to get a quick answer.

If your calculations reveal that you’ll pay more interest over the entire term of the refinance mortgage, there’s an easy strategy to reduce both interest paid and the term of the new mortgage.

Simply make the same monthly mortgage payment you were making before the refinance, with the excess going toward principal each month.

This will shorten the loan term and could save you a lot of money. I explain this method on my mortgage payoff tricks page, which you can read about in more detail.

If you can afford it, you may also want to look into shortening the loan term by going with a 15-year fixed mortgage.

For example, if you’re already 10 years into your 30-year mortgage, reducing the term to a 15-year fixed will ensure you don’t extend the aggregate term.

And with mortgage rates so low, you may be able to retain your low monthly mortgage payment and pay the mortgage off even earlier than expected.

Also, 15-year mortgage rates are lower than those on the 30-year fixed.

Other Mortgage Refinance Considerations…

  • Even if interest rates are comparable to what you already have
  • It could make sense to refinance out of an ARM or an interest-only loan
  • The same is true if you want to get rid of mortgage insurance
  • Or if you’d like to consolidate two mortgage loans into one

If you’re currently in an adjustable-rate mortgage, or worse, an option arm, the decision to refinance into a fixed-rate loan could make a lot of sense.

Even if the monthly savings aren’t tremendous, getting out of a risky product and into a stable one could pay dividends for years to come.

Or if you have two loans, consolidating the total balance into a single loan (and ridding yourself of that pesky second mortgage) could result in some serious savings as well.

You’ll have one less mortgage to worry about and ideally a lower combined monthly payment.

The same might be true if you have mortgage insurance and want to get rid of it. Many homeowners will execute an FHA-to-conventional refinance to drop MIP and reduce monthly payments once they’ve got some equity.

Additionally, you might be able to get your hands on a no cost refinance, which would allow you to refinance without any out-of-pocket costs (the rate would be higher to compensate).

In this case, if the rate is lower than your existing rate, you start saving money immediately.

As mentioned earlier, a cash-out refinance could also contribute to your decision to refinance if you are in need of money and have the necessary equity.

Heck, with mortgage interest rates this low you could even make the argument to tap equity and invest it elsewhere for a better return.

Again, you’ll want to aim for a lower rate and cash back, but there could be a scenario where borrowing from your home is the best deal, even if you don’t save much or anything mortgage payment-wise.

This is really just the tip of the iceberg. There are countless reasons to refinance your home loan, including many seemingly unconventional ones you may have never thought of.

Whatever the reason, be sure to put in the time (and the math) to ensure it’s a good decision for you and not just the bank or a loan officer pushing you to do it!

Don't let today's rates get away.

Source: thetruthaboutmortgage.com

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