Whenever I speak with a potential client about mortgage financing, I always as them, “what is your objective?” These days, the most common response that I get is, “I am trying to take advantage of the cheapest money ever.” Indeed, interest rates are at historic lows, and people are flocking to access cash like never before. Whether for mortgage financing – to buy a home, or reposition a current outstanding balance – or new credit cards and student loans, money is now the cheapest it has been in ages, and consumers are taking advantage.
The Federal Reserve Bank of New York’s Center for Microeconomic Data issued its “Quarterly Report on Household Debt and Credit,” which shows that total household debt increased by $87 billion (0.6%) to $14.35 trillion in the third quarter of 2020. The increase more than offset the decline seen in the second quarter of 2020 as total household debt has surpassed its 2020Q1 reading.
According to the report, Mortgage balances—the largest component of household debt – rose by $85 billion in the third quarter and sat at $9.86 trillion on September 30. Mortgage originations, which include refinances, were at $1.05 trillion, the second-highest volume in the history of the series and second only to the historic refinance boom in 2003Q3.
Also noted in the report was that auto and student loan balances both increased in the most recent quarter, by $17 billion and $9 billion, respectively. Auto loan originations, which include both loans and leases, reached a series high in Q3. In total, non-housing balances (including credit card, auto loan, student loan, and other debts) saw a $15 billion increase. With the Federal Funds rate at “zero,” banks are churning out the cheapest lending at record speeds.
While we currently relate to money as “cheap” nowadays, the most common definitions for the word “cheap,” according to the Merriam-Webster Dictionary, are – “bargain,” “of little cost or value,” or “of inferior quality or worth.” I would argue that in most cases of lending – that is, in fact, the type of advice that consumers are getting with their loans. It troubles me to hear from people of the low-quality guidance they recently received from other banks in the marketplace was without regard to their particular circumstances.
I talked to a mortgage prospect last week, and I was disappointed to hear that after two months of having a completed application with a local bank, their application was ultimately rejected. After a few minutes of discussions, I discerned that their outstanding debts and low credit score prevented them from completing financing with this bank. Afterward, they went to a local broker, and after two weeks of dragging them along, they were told that their application was too complicated.
Indeed, the qualification details and paperwork were complicated. Still, with a little patience and consideration, we were able to structure and approve them for a fitting loan – saving them over $600 a month. I have countless examples of how a disregard for a few critical pieces of information have caused significant delays or financial penalties for applicants working with mortgage representatives who merely offer “cheap” rates. While everyone is looking to save money, when it comes at the expense of other mortgage factors, the discounted rate is not a savings at all.
During the course of a mortgage application and process, there is bound to be something that causes delay, concern, or interruption of a loan. How your mortgage representative is able to navigate and work through those changes is where the savings and value are truly hidden. Whether it be in the reduced rates that I was able to offer my clients at the 11th hour, or a savings on extension fees that I was able to avoid altogether. More than discounted prices, one should be looking for the most expensive advice possible always. That will lead to genuine “cheap money.”
Shout out and Happy Birthday to Rachel Erdfarb, Amiee Idan, Alex Kaye, Hadassah Lowy, Michael Meier, and Evan Rottenstreich.
Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well as specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at [email protected].
