Your client asks, "Should I believe the headlines that scream 'Refinance Now'"?

Maybe.

You and I both have the training to see a mortgage within the overall context of your client's  financial goals.

Sometimes that means your client should NOT let me help them find a new mortgage.

In this newsletter I'll give you food for thought on the question of refinancing. As always, I stand ready to consult with you and your clients on their individual circumstances.

--Tom

It is 1970’s era thinking that interest rates must drop by 2% + to justify the cost of refinancing.

First problem with that: If your client is currently at 6% waiting for a 2% drop in rates, they are unlikely to see 4%.

Second problem: In 1978 the price of home was about $38,000 which meant $2000 in closing costs took a while to recoup.

With the average home now closer to $200,000 the dollar savings on smaller interest drops is bigger. Yes, 2% is nice, but not a universal number.

What if your client could save $150-200 each month for 30 years? That certainly adds up.

Advise your clients to skip the temptation to make decisions based on rules of thumb.

Run the numbers. I can help, starting with this video.

Let's say in 2004 your client contracted 7-year ARM (7/1). If she sticks to Myth Two and waits until 2011, who knows where rates will be?

The opportunity to lock into a fixed at 5-5.5% is NOW.

On the other hand if your client's 2004 ARM adjusts this summer at 5.5%, it's time to shop -- a no brainer for him.

Want more information?  Watch this video or call me. Together, we'll run the numbers based on today's value of your clients' home and today's mortgage products.
 

PMI is not universally "bad." I've refinanced people into contracts that required PMI because the mortgage made overall sense for their financial circumstances.

In the not-so-recent past, when home values were appreciating quickly, people counted on rising equity to quickly eliminate the need for private mortgage insurance. They avoided PMI with a second mortgage or a fixed-rate equity line.

In today’s marketplace, most homes haven’t appreciated much. Seconds and equity lines are tougher to acquire now. People are suddenly uncomfortable with the thought that rates will adjust.

Tell your clients to take heart. PMI companies have creatively structured products to reduce risk to lenders and make the premiums more tolerable.

Instead of focusing on PMI, they really need to look at what how much it will cost to own this house over the timeframe the plan to be on it. How?

• Add up all closing costs, interest and PMI (the three financing costs) over the remaing time they expect to stay in the house

• Compare to existing costs of their current mortgage/other options

• If they spend less over time in a contract that includes PMI, take it

For example, let's say your client plans to live in the house another eight years. If he saves $30,000 including PMI and interest and costs and spends $5,000 in closing costs that’s a net gain of $25,000 over eight years. He will have saved $2000 a year, and that's the bottom line.

The total cost to the homeowner matters more than the interest rate and more than whether the contract requires PMI.

Want to know more?  Watch my video.
 

When refinancing, I advise clients to think of either moving their monthly payment savings into a different asset class or reducing liabilities.

You and I know that assets need to grow and liabilities need to go.  We're on the same page

As a Certified Mortgage Planning Specialist™ it's my job to recommend products that improve your clients' balance sheets and cash flow positions.

We speak the same language.  We're on the same team. 

Please let me know how I can effectively serve your clients' mortgage needs.