Refinancing Myths

True or False? A Must read for anyone that has a mortgage interest rate over 4.0% today…

These are questions I hear everyday!

I have 18 years left on my mortgage – I do not want to start over with a new 30 year mortgage!

A valid concern if you start over with the new lower payment. However, if you keep your payment the same as it is now – the interest savings will pay your loan off years sooner than the 18 years you have left. Options to consider might be a new 15 year mortgage that has an even lower rate.

Banks are not lending

If you are going to be in the home for 5 years or more or your plans are uncertain – you cannot beat a conventional 30 year fixed ratemortgage at current rates well below 5%.  However, if you are planning to sell once the kids go off to college or some other event coming within the next few years – it could be a huge advantage to choose an adjustable rate mortgage that would have a rate in the low to mid 3% range today.

You have to save at least 1% to make it worth while

Totally crazy! When I assist a client in evaluating whether or not a refinance makes sense – we start with a comparison of true no cost options and assume the same payment as the client is making on their current loan.  The result is an accurate comparison of each option identifying how many years can be taken off the mortgage.  That way a client only has to decide if the time and effort to document the loan is worth taking 2-3-5 or more years off their mortgage is worth the effort.  Since it is no cost - the savings are immediate from month one, and compound quickly.

There is no Jumbo Money

There are certainly less lenders in the jumbo mortgage market (over $729,750 loan amount in high cost areas).  However, there is evidence of a comeback and more lenders are re-entering this market which is improving rates and availability of jumbo money.  There are attractive options combining a sub-5% loan up to $729,750 loan with a second loan that could make sense in some circumstances.

A bank is better than a broker

If you have significant investments with your bank and a private banking relationship – there is a chance you can leverage that into the best offering from the bank. In addition, some banks have programs that they offer exclusively at a branch level. Working with a qualify mortgage broker (such as Signet) provides access to a wide variety of lenders including the wholesale division of the big banks and many lenders whose primary business is mortgage lending and offer more competitive pricing and more options. Signet Mortgage Corporation has about 15 lenders to choose from providing flexibility and the most competitive options.

My loan balance is only $70,000. Even with a 6.5% rate, it does not make sense to refinance

True - because any refinance must consider the costs of a transaction.  A low loan balance means that the credit back from the lender that can be used to offset costs and make a transaction a true no cost loan may not be enough.  The credit is based on a percentage of the loan amount so on low dollar value loans – just does not make sense.

My home value is down and loan would be more than 80% loan to value – I do not want mortgage insurance

Good point, however, there may be options.  If your loan is owned by Fannie Mae or Freddie Mac – then you might be able to refinance even if your first loan is up to 110% of the value of your home!  This is part of the Home Affordability and Stability Act.  You can determine this for yourself at our website – www.signetmortgage.com under “Client Tools” and “Freddie/Freddie Owned Loan”.

Getting a loan is hard

This is true when comparing to a few years ago – no getting around it.  The easy breezy options that got everyone in trouble are no longer available, for the most part a very good thing.  A self employed person that relied on stated income in the past might find it very hard to qualify now because documentation requires filed tax returns.  That being said – if there is a way, we will find it.  It is important to have an advisor that knows how to review a tax return and present your situation in the most favorable light.  For example, business use of home and depreciation are items that can be added back to income to qualify.  Most of the loan officers at Signet (including me!) are CPA’s so know our way around a tax return and can make it happen.

Appraisals, documentation, the process is hard…

This is true – certainly compared to a few years ago.  Changes were made with the intent of protecting the consumer.  Some have gotten in the way such as creating “independence” in the appraisal process.  The unintended result has been a lower quality appraisal process and with market declines and so many distressed properties on the market – values are a challenge.   The good news is we do not get paid until a loan is done so we work hard up front to determine what will work and what will not and will provide you the best advice you can get on your mortgage.