Mortgage rates are finally coming down, and after two lean years, lenders are coming out of the woodwork to show you how low your interest rate can be with a refinance.
Before you get too excited, make sure you are taking a very close look at those closing costs! Things are not always as straight-forward as they seem.
I’ve already had a handful of clients almost fall into the online lender marketing trap this year, and it’s only January! One in particular was solicited HARD by Rocket Mortgage and told she could get 6.125% before that interest rate was something available for her scenario. So how was she getting 6.125%? By paying almost $11k in rate buydown! So that $200 per month she was excited to save? It would take her 55 payments to BREAK EVEN on that up-front expense being rolled into her loan amount. Of course, as soon as I gave her a look at what was going on behind the curtain, and she told them she wasn’t interested in moving forward, they offered to drop the buydown fee by $6,500. Still not a good deal for her in an environment where rates are projected to continue their decline over the next two years, but it speaks volumes about their tactics.
Here are some factors your loan officer should be discussing with you before moving forward with a refinance:
- What is your current loan amount compared to your property value? If less than 80% you may be able to roll closing costs into your new loan.
- If you are able to roll your closing costs in, what is the long-term impact of that on your property’s equity? Is paying those costs a better long-term strategy?
- Are you currently carrying mortgage insurance, and maybe close to being able to drop that monthly cost? If that’s the case, refinancing too soon could be costly.
- What high interest debts are you carrying that you may be able to eliminate using your property’s equity, and how does that impact your long-term financial profile and credit score?
- What is the forecast on future rate drops? At what point does it make the most sense to move forward and why?
The past two years have been so slow for mortgage lenders that as of December 18th of last year it was noted that close to 40% of them had not renewed their licenses. Many have pivoted to other industries during this downturn and may not be back. The ones that are left have held on through very lean times and are eager to make up for past losses.
Bottom line: Not everyone is looking out for YOUR best interest. Make sure the people you choose to work with are.
Curious about when refinancing is a good idea for you? Schedule your no-obligation Mortgage Check-Up Today!