The question is what is a person’s financial focus? Is it short term or long term, and yes, it can be both. We all know that rates have gone up, but even if you have a low rate on your first mortgage, you still may be able to save money by refinancing. If your focus is on immediate cash flow, then the question is: If you consolidate all your debt, will you save substantially on a monthly basis? The next question is whether you can consolidate your debt without extending your existing time frame.
What should you look for and analyze?
If anyone has an adjustable-rate mortgage, they should start looking at the terms right now to pay attention to the index, the margin annual and lifetime caps and the adjustment periods.
Next, if you have an equity line, your payments may be low now because you’re paying interest only. The prime rate is currently 8 ½%. If you have a large equity line balance you want to look at the lifetime cap and see if there are any conversion features. Pay attention to how long you’ve had the line drawn because if you’re approaching 10 years, the standard line starts to fully amortize over the next 20 years, which means your payment will increase substantially.
Credit cards: Some people live off credit cards. Some people use them to get points but pay them back right away. If you have an extended balance and the balance is large, and you don’t have any kind of balance, transfer 0% type of credit card offers, you are probably paying upwards of 18 to 28%.
PMI (private mortgage insurance): If you are paying mortgage insurance, monthly mortgage insurance can be terminated. It’s important to understand how it terminates so that you can make sure your payment drops and the monthly mortgage insurance is removed (even though it is supposed to be automatic at a certain point). Call your lenders servicing department for directions and their process for PMI elimination. This may save you some cash without much expense.
Debt consolidation, cash flow help and equity acceleration options:Refinancing is not only a rate-based decision and there are many reasons to consider refinancing, as listed below.
- Damaged credit may have improved. Improved credit scores open the door to possibly refinancing at a rate better than an existing rate.
- Credit card debt, as mentioned above, can be super expensive, as can be the case for student debt. Number crunch and see if a new loan can improve your cash flow without being rate focused.
- It may be that you have paid your 30-year fixed rate down enough to switch to a 15-year fixed rate, even at a higher rate, and knock off your existing loan in 15 years.
For the self-employed. There are many ways to get a mortgage without tax returns. Rates are always higher under those programs. If you borrowed money under one of the no-tax return programs, you could probably save 2 % on the rate if you can qualify for a conventional loan. The goal: if your income was low in the previous year, take fewer expenses for the upcoming tax year; if practically possible, beef up your income, pay the tax, and shoot for a better mortgage rate. Structure salary enough to qualify you for the mortgage financing you may be looking for down the line. Don’t change the business structure until you close on the loan!
Low credit scores cost big bucks! Work on increasing your scores.
Carl Guzman, NMLS# 65291, CPA, is the founder and president of Greenback Capital Mortgage Corp. & www.Mortgagegenius.com. He is a real estate mortgage banker and business financing expert with over 33 years experience. Carl currently has 214 five-star reviews on Zillow. Guzman and his team will help you get the best mortgage financing for your situation and his advice will save you thousands! www.greenbackcapital.com [email protected]
