Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
Rates are once again trending lower, thanks in part to the global economic concerns of the coronavirus. Inquiries are resurfacing once again, about potential refinance opportunities where homeowners who didn’t make a move soon enough are revisiting those options. If you are one of those individuals, this is a new chance for you to reach out to a mortgage advisor and do your analysis.
Many people hear “historically low rates,” and they look to see how much a simple refinance could save them, compared to their current monthly payment. That’s a great first step, but I have some news for you – If your analysis is solely based on the current-payment versus the proposed-payment, you are missing a few pieces of the equation.
Of course, one of the most common variables is the “total closing costs,” which must be factored in to see what your break-even point would be for the refinance benefit. Along these lines, many unscrupulous mortgage loan officers will try to hide or downplay the closing costs by claiming there are no “out of pocket expenses.” What they end up doing is increasing the current balance of your mortgage to pay for these fees.
Alternatively, many are familiar with the famous “no closing costs” options, which means that a broker or lender will give a slightly higher than market rate, which would allow the bank to pay the actual costs. This is certainly a viable option, depending on the interest rate options one way versus the other. The point here is, no pun intended, there are always fees to obtain a mortgage – the only question is, who is paying for them and how?
Outside of the costs of obtaining the new mortgage, often, the new proposed mortgage sounds extremely enticing because it resets the duration of the loan back to a 30-year term. What often seems like a good deal, might not be the most advisable, until both the monthly “cash flow” benefit as well as the “total life of loan” interest is considered.
Once someone has an understanding regarding the above loan variables and mechanics, the conversation always leads to – “Can you get me a new 15-year mortgage with the same payment that I have now?” I call that a “Term-Down Mortgage.” That is where homeowners are trying to lower the overall years of their loan based on the favorably low interest rates.
The question becomes, is this something that everyone should consider? On the surface, the answer seems to indicate yes. Unfortunately, I have many prospects who pursue this option when in-fact, it truly doesn’t make any financial sense in their situations. Why wouldn’t it make sense for someone to consider a lower term? One of the many reasons would be because they have other debt that is considerably higher in interest rate compared to the 3% option they are being offered.
Logically, if one has other balances or obligations that are more than the low 15- or 30-year fixed rate option that they are being offered, then it’s not something they should consider. It seems to be a widespread misconception that a person should aggressively try to get their home mortgage-free as quickly as possible. That premise made sense before the average consumer was burdened with so many other debts and payments.
Unfortunately, there is no perfect and uniform answer for a question of this nature. It is only after a full mortgage analysis and consultation, where you discuss all of your financial obligations (on and off the credit report), would your mortgage adviser be able to offer you an exact answer to this question. As always, only a competent and reputable lender should be entrusted with all of these considerations and recommendations.
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