The Certified Financial Planners of Impel Wealth Management are always trying to share ideas and thought leadership with you, our trusted friends and clients. Our goal is to make sure that you have the resources needed to be informed and make smart money decisions.
In what we hope will be an ongoing series, we will be addressing a number of common questions that come up regularly when we meet with clients. Today we bring you the first installment. With interest rates near all-time lows, and expected to rise, consumers are being bombarded with offers to refinance their mortgages. Below we address several questions and issues that should be thoroughly vetted before making a decision.
1. Why is the current market ideal for homeowners to consider a mortgage refinance?
Many homeowners have seen the value of their homes rise over the past couple of years. This gives them significant equity. Due to Federal Reserve Bank interest-rate policy, many homeowners can lock in fixed rate financing at a lower cost than they currently have on their existing mortgages. They may also be able to access some of their equity for home projects or to consolidate higher interest debt.
2. What questions do homeowners need to consider before refinancing?
Homeowners need to understand the cost of refinancing. Many lenders are tempting homeowners with lower rates, while at the same time charging enormous origination fees and closing costs. It could take years for lower payments to make up these costs. Please make sure you understand these factors and do a thorough cost/benefit analysis.
3. What should homeowners look for when comparing refinance offers?
Homeowner should be comparing the monthly savings of the new loan to the upfront costs. This should be compared to the projected timeline that they plan to stay in the house. In general, a good rule of thumb is for lower mortgage payments to exceed the origination costs in 18 to 24 months. If it takes longer than that, it may not be worth doing.
4. How can homeowners protect themselves from refinance scams?
Look at the actual numbers including loan origination fees and closing costs. Don’t just be taken in by a slick solicitation for lower interest rates and a lower monthly payment.
Recently, several clients have been approached by different mortgage lenders offering slightly lower interest rates and slightly lower monthly payments. However, in examining many of these documents, the upfront costs to do the refinancing have amounted to more than $10,000. It would take many years for the homeowners to just break even.
Absent the clients reaching out to discuss the situation with us, the main winner would have been the lenders who would have made a big fee at the expense of an unaware or uninformed consumer.
Never feel pressured into making a fast decision. I know several clients who have been on the phone discussing refinancing options with online mortgage brokerage companies. They have sometimes had the agent and a supervisor tag team them to try to force a decision quickly rather than thoughtfully.
We are here to help. Please let us know if you have questions about this topic, or the best way to manage your personal mortgage and debt financing options.
Our team will continue to identify common themes and questions as we meet with you. However, if you have a particular topic that you would like us to address in the series, please let us know. We want to make certain that we are helping you with the issues you confront. It is part of our service and the value proposition we strive to provide as we continue “Moving Life Forward”.