- Slow down -- if you miss this boat, you can catch the next one.
- If you shop for a refi lender, extract a promise to close.
- Clients need to be prepared for the new realities of TRID.
Today, mortgage rates hit new 2016 lows — and some companies are reporting the lowest rates in three years.
[graphiq id=”baIEwsWrrqB” title=”30-Year Fixed Rate Mortgage Rates for the Past 6 Months” width=”600″ height=”493″ url=”https://w.graphiq.com/w/baIEwsWrrqB” link=”http://mortgage-lenders.credio.com” link_text=”30-Year Fixed Rate Mortgage Rates for the Past 6 Months | Credio” ]
So if homeowners aren’t thinking about selling right now, there’s probably something else on their minds: refinance.
Here’s how to refinance a home loan the right way.
The 8 rules
1. Slow down. Yes, you might miss the boat, but better to do it right.
2. Remember that closing costs on a primary residence refinance are not tax-deductible. The interest saved is deductible. So, when you’ve computed the interest saved in the first year, reduce it by your marginal tax bracket — or just 30 percent, close enough for most borrowers — before comparing to costs.
3. A common — and wise — practice is to stretch loans back out to 30 years when refinancing. If your current loan has, say, 27 years to go, and you stretch back out to 30 years, remember that a portion of the decline in the new monthly payment is due to re-amortization, not a “savings.”
4. If your loan salesperson is focused on the improvement in your monthly payment, and does not isolate the issues in #2 and #3 above, then find another loan salesperson.
5. Boat-missing part two: I know a lot of people who thought the sub-3.50 percent in 2012 was absolute bottom and we’d never see it again. Here we are. And a fair chance of going lower, if Europe, China and Japan continue to do their best for us. Moral of the story: There’s often another boat.
6. Boat-missing part three: If you shop for a refi lender (generally don’t — all you’ll do is drive away the best), extract a promise to close. Not the cheapest deal, not re-price it if rates go lower, but get it closed. Every processing team in the U.S. is about to be overwhelmed.
7. Loan pricing today is “risk-based,” very sensitive to loan-to-value ratio. You can’t know the deal you’re going to get until the appraisal is in. So analyze the deal on low-side value at the beginning, and be pleasantly surprised, not in a dead end.
8. And joy of joys…those of you who have refinanced a zillion times during the last 34 years of consistently declining rates, and think you’ve got a good understanding of process and lender documents…HAH! Do we have a surprise for you.
As of last October, we inflict the completely re-done TRID approach, also completely confusing. When you’re done with your closing, please write to your Congressperson to say that the Consumer Financial Protection Bureau should do this one over again, with simplicity and comprehension in mind.
Good luck, and be careful out there.
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at firstname.lastname@example.org.