I had two conversations last week that were very similar, but the conversations were in fact completely different in so many ways. These were two individuals looking to refinance their mortgage – both loan amounts would be below $548,250 – which is the best tier for getting the lowest possible rates, and both with substantial equity in their homes. Of course, they both had other essential requirements such as excellent credit scores and income qualifications. They both were eligible for the same exceptionally low interest rate that I was able to offer.
One of the callers, however, received a solicitation by mail that quoted a significantly lower rate. I could tell he was anxious to get off the phone quickly, assuming that my proposal was uncompetitive. While we were talking, I remembered a video that I watched years ago produced by Meir Kay – the energetic and passionate vlogger known for his inspiring and thought-provoking videos that have gone viral throughout the world. In this particular video, Kay portrays the story of a professor who stands before his class with a clear glass cup full of water and merely asks the audience, “How heavy is this cup of water?” Students shouted out all sorts of answers ranging from eight ounces to a couple of pounds.
After entertaining open dialogue for several moments, the professor continued – “In truth, the absolute weight of the glass does not matter in the short term. It depends on how long I hold on to it.” He goes on to explain, “If I hold it for a minute – nothing happens. If I hold onto it for an hour, my arm will begin to ache. If I hold it all day long, my arm will feel numb and paralyzed. In each case, the weight of the glass hasn’t changed, but the longer I hold onto it, the heavier it becomes.”
Most people evaluate the “weight” of their mortgage by the interest rate they procured. I don’t blame them for this conception, but as you can imagine, that is not the best way to make this calculation. As you see from the story of the cup of water, the same amount of water in the same cup will feel lighter or heavier depending on how long it’s held. I believe the same consideration can be applied to a mortgage loan.
That was my illustration to the caller who was anxious to move forward with the other offer because they presented a lighter (lower) interest rate. I explained to him that the rate they are offering him comes with buydown points, which he was familiar with – but it wasn’t advisable in his case. He had a highly common perspective on the matter - thinking it would only pay to refinance his current mortgage if he were to receive that low of a rate, especially because he was planning on selling his home in two to three years.
While I was able to match the rate being advertised, I went on to show him that, given his specific needs and circumstances, my initial proposal was a better deal for him. I was covering all the closing costs, and he would be saving immediately. With the other option, he would need to “hold” the mortgage for over 60 months to reap the actual financial benefits of the lower rate being offered. This is yet another reminder to always pay attention in class. Congratulations to all children and parents on their summer break!
Shout out and happy birthdays to Howie Bromberg, Emily Caplan, Daniel Dearson, Dov Erdfarb, Ari Feldman, Shaina Giller, Bat Goldstein, Chaim Herman, Jill Kirsch, Jacob Kramer, Jason Mogul, Yoni Pollock, Estie Rottenstreich and Debbie Shushan.
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]