This week I received a call from a woman who asked when I can speak to her husband to discuss details of a mortgage they were considering with their current bank. He was candid enough to tell me that he had was more than likely going to pursue the mortgage with their current bank, but wanted to “double check” certain details of their discussion.
The bank made recommendations about taking on more of a loan than he was seeking because it would put them in a different category of financing and potentially a lower rate. When I asked what the difference was in the fees of one program versus the other, he wasn’t really sure. My calculations put him at the same, lower, rate irrespective of the loan size he was seeking. I wasn’t sure why he was encouraged to incur a more significant liability for money he wasn’t attempting to extract from his home’s equity.
In a business where your expertise is often more significant than your price, getting the right advice is the most critical consideration of all. When it comes to researching options for a financing opportunity, here are some insider-tips to consider:
Staying With Your Current Servicer. Having an account with your current mortgage servicer can be helpful, but any time you refinance a mortgage, all banks will consider it as if you were a brand new customer. A significant portion of new mortgage loans are sold to Fannie Mae and Freddie Mac which means your existing relationship means nothing. Quite frankly, is that even called a “relationship”? They collect your mortgage payments and more often than not don’t do a great job at it. Give your current servicer a shot, but make sure they can hold their own against what the market has to offer.
Low-Ball Ad Offers. Rates go up and down all the time, and not every drop in rates creates a good refinance opportunity. Just because you get a mail stuffer that says it “pays for you to refinance” does not mean that it actually does. Just because the solicitation references your current loan balance and mortgage lenders name does not mean they “know” anything substantial about you. Keep in mind that there are closing costs to consider, and there may also be some repayment penalty on your existing mortgage. Be prudent about the analysis before you agree to anything.
Starting All Over. When considering a refinance, you should also factor in the months that have already been paid into the equation. Granted, the numbers might look attractive because your payments will be going down, but if you have already paid many years of a mortgage, and a great deal of interest along the way – starting again might not necessarily be the smartest financial decision. Monthly payments, as well as total life-of-loan interest payments, should be mutually considered.
Short Term Gains. Don’t make mortgage decisions based on the assumption that you will always be able to refinance. This is especially true with regard to things like balloon payments or adjustable rates that might make your mortgage unaffordable in the future. As many people found out during the housing crisis when the time comes to refinance you might find that you lack the credit standing or the equity to do so.
Disqualifying Yourself. Don’t count yourself out for a refinance before you explore all your options. Just because one broker or bank says you can’t get a mortgage, does not mean it is impossible everywhere. From different appraisers to different credit-scoring models, to different underwriting philosophies – there are options out there elsewhere. Don’t be afraid to ask the broker or banker who says no to you for a recommendation of someone they might know who can help you. Some of my best clients came via a recommendation from a competitor that couldn’t offer something that we can.
Mortgage financing is as much about your unique goals and circumstances as it is about interest rate conditions. It always pays to analyze the details in full before you rush into any financial decision. Naturally, it makes the most sense to work with someone competent who proactively guides you through many of these questions as you determine the right approach for your specific situation.
Special shout out to Zev Lewinson.
By Shmuel Shayowitz
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 specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience including licenses and certifications as certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at [email protected].
