Why Should I Refinance My Home?

I receive this question quite often – Why Should I Refinance My Home?  Whether you live in Texas or anywhere else, this is a valid question.  Don’t just rely on anyone answering this question, you should consult a professional.  Refinancing your mortgage is a big step, but how do you decide when to do it?  I like to give my clients some tips to help them decide when the time is right for them.

Its no secret.  Everyone has been talking about the rates – “The rates are at an all time low.” or “Rates are at historic lows”.  This is probably the first reason my clients decide to refinance.  They hear it enough and want to know if refinancing would result in a lower monthly payments. Generally, if rates drop 1 percent or more – it’s a good time to refinance.  But lowering your rate is not the only reason to refinance your home.

Perhaps you were thinking about refinancing because you need extra money.  College tuition or a high interest credit card?  When refinancing to a lower rate and payment the money you save can be spent elsewhere.

One of the best reasons to refinance is because a client wants to reduce the term of their loan.  Many of my clients refinance to save money over the life of their loan. For example, if you currently have a 30-year loan and you refinance to a 15-year loan, after you refinance you may have a higher monthly payment but you will pay off your loan quicker.  I recently refinanced my home to a lower rate and shorter term.  The payment is slightly higher, but I am saving over $122,000 in interest.

Do you have an Adjustable Rate Mortgage (ARM)?  I strongly recommend refinancing if you have an ARM loan.  Convert it to a fixed rate loan.  Right now, fixed rate mortgages are lower than adjustable rates and a fixed rate mortgage leaves out the ‘element of surprise’ when the adjustment happens every 6 months to 1 year.  If the rates are lower than they were when you got your loan, switching to a fixed rate mortgage can offer more security and stability as well as save you money!

The last reason some clients look to refinance is to consolidate debt.  Loans such as second mortgages, credit lines, student loans and credit cards can often be consolidated when you refinance.  In Texas, we do have regulations for completing a Texas Cashout.  I’ll be putting a post together for those as well.  Watch for them on my outside blog www.FriscoTexasMortgage.com.  Plus, consolidating your debt can result in tax savings, since consumer loans are not tax deductible, but a mortgage loan is tax deductible.  For a better understanding, please consult a Tax Advisor.

Fortunately, rates are still low today, but no one knows how long they’ll stay that way. If you’ve been thinking about refinancing your mortgage, give me a call today. I’ll work with you to find a great rate so you can have more money in your pocket in 2009!

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BEWARE: There are dangerous twins on the loose – Fear & Greed

BEWARE: There could be dangerous twins in your area. They are called Fear and Greed!

Although these twins do not always hang out together, you will often hear about how they destroy one thing or another. It’s not their fault. They were left on their own as children and had to learn about the tough world. Unfortunately, they keep listening to the wrong people. Their idols are different than yours and mine. Most recently, they have had a lot of focus on Real Estate. I know you are wondering how can you tell them apart and what should you do if you find them?

Well, Fear is the younger twin. He is unsure of many things in the world and is easily influenced by the articles he reads and hears about. Plain and simple, he is just afraid of what ‘could’ happen. This feeling may have been caused when he was younger, tried to be like his brother, Greed, and was unsuccessful. Perhaps it did happened because he watched too many movies or maybe he went to Vegas and watched too many people lose their money. No one really knows why and no one has taken the time to show/tell him differently. You may have run into him in your area without even knowing.

Here are some things that Fear may say or talk about, as well as some helpful tips for you:

  • Fear – “I don’t want to buy a house that will decline in value. I heard all markets are down 18%.”  
  • Tip – Show/tell them stats in your area. True that the overall average price decline is 18.2% but that is because some areas are down over 30% and others are down 2%. For example, DFW is down 3% on average and maybe less, depending on your specific market (Frisco Texas is up 1%). If you are a Realtor in North Dallas, I may have listed your city numbers in this post.
  • Fear – “I’m not sure I would qualify for a home loan because I heard banks are tightening their requirements and not lending money.”  
  • Tip – As you know, this is incorrect. Sure, banks are looking at files more carefully. But that does not mean you do not qualify. Take a litmus test: Is credit over 580 (540 with some lenders), verifiable income, no BK or FCL within last 3 years?   if they have a FICO above 580 (540 for some lenders), receive a pay check, and have not been in Bankruptcy or Foreclosure for the past 3 years? There is more too it, but this will get the ball rolling.
  • Fear – “I don’t know if I make enough money to buy a home, so I just rent.” or “The attendant at the local 7/11 told me to wait because it will get worse.”
  • Tip – If you have not spoken with a professional, then you still have no idea. Suggest a local mortgage professional talk with your client to see what they may qualify for. Advice from people outside the business or someone that knows ‘someone’ is not a viable resource. Besides, who knows where they receive their information.
  • Fear – “What if I lose my job like the other 500 million people per day?” (There’s only 305 million in all America)
  • Tip – If my grandma had balls, she would be my grandpa (no offense grandma). The point is that you can not live off of ‘what if’. As you can see from the video, sometimes even the ‘professionals’ get stats wrong. Share the stats in your state, county, city. For example, Texas actually increased employment from last year by 153,000 compared to the year before (yes, that’s including the last quarter). Unfortunately for other states, Texas is the only state with positive numbers. But perhaps your area is not as effected.

 

Now, Greed is completely opposite of his younger brother. Greed is always thinking WIIFM (what’s in it for me). Often he is thinking of the quickest way to make a buck without spending money or working too hard. He wants to own the BEST and the BIGGEST, but doesn’t want to pay more than the worst and the smallest. Again, its not necessarily his fault. Greed has always looked up to those that rolled the dice and got lucky. He is hoping to get lucky as well. You may have also run into Greed in your area without knowing.

Here are some things that Greed may say or talk about, as well as some helpful tips for you:

  • Greed – “Im holding out for a lower interest rate.”
  • Tip – Sure, rates could decrease another 1/8 or 1/4 percent, but it could also increase (without notice). If you are not already approved with a lender, you may miss out on some of the lowest rates in a very long time. Don’t squabble over 1/4 percent while rates are low already and home prices are still low.
  • Greed – “I may be able to buy the house for less and/or wait for the listing price to drop”
  • Tip – Take the advice of your Real Estate Agent and make an offer that is fair in comparison to the market. Don’t focus on ‘low-balling’ the offer or holding out. Not everyone is looking for the lowest price and someone could come along and steal your dream home.
  • Greed – “I think my house is worth more than what you are suggesting, Mrs. Realtor.”
  • Tip – There is not doubt that you will feel that your house is worth more… to you. Current sales for your size home show a different story. The good thing is that the house you want buy is also lower than what the sellers think its worth. This is a win/win market in many cases.

If you see these twins in your area, don’t panic. As a matter of fact, welcome them into your home. Show them some pretty pictures of the real world and how it could be if they were a little more open-minded. There are a WIDE variety of homes on the market today, so the choices are almost endless. Mortgage Companies are still lending money to the majority of applicants. FHA is a fantastic loan product for those with less than perfect credit and/or with little money down. And lastly, the rates are still outstanding!

Bottom line… Explain to them why its still a good market to buy and sell Real Estate.

 

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Other helpful reads may include the following:

Open House Strategies

Call Conversations

Credit Repair Suggestions

Realtor Marketing

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Always available for your Frisco Texas Mortgage needs!

John Cannata    p# 214.545.5604  

www.TxMortgageConsultant.com

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Save over $22,000 – Don’t worry I am not selling you anything

That’s right, you can save THOUSANDS of dollars.  I know, sounds impossible and you are waiting for the punchline or for me to tell you to invest in something that will have huge gains.  Nope!  That’s not my job, but I am sure there are plenty of posts and/or infomercials that will take care of that for me.

 

This post was sparked from phone calls I received from new and previous customers.  Yes it is true that rates are still at an all time low.  But does that mean you need to refinance?  Well, that is not always the case. What??  A mortgage consultant telling you it may not make sense for you to refinance?  Yes and No.  When I am talking with someone about refinancing, I look at many different aspects.  Obviously we are going to talk about credit so we can assess your current situation.  This post is not about Credit though.  If you need to review your credit though, take a look at my previous post which talks about getting a free credit report.

 

When I consider someone for a refinance, I look at their current loan balance, the term they want compared to how much time they have left, and their credit score.  Right now, more than ever, your credit score is a major driver of what interest rate you will receive.  So, let’s look at a scenario where you can save yourself some thousands of dollars without refinancing.

It may not be possible for you to increase your monthly mortgage payment due to current cash-flow, but if you can that will obviously help.  Most mortgages permit you to make additional payments to your principal at anytime.  Perhaps you receive a larger than expected tax return, or an inheritance, or a non-taxable cash gift.  You could apply this money towards your loan’s principal, resulting in significant savings and a shorter loan life.

Let’s use the following example:

  • Loan Balance $100,000
  • 30 year fixed rate
  • Current rate 6.5%

In this scenario, the borrower would pay a total of $227,542.98.  This is the total of all payments made over the next 30 years.  That equals $127,542.98 in interest payments.  I know that is a crazy number (for reference, this number can be found on your Truth In Lending Statement).

If the same borrower makes a one-time $5,000 payment the first day of year 6, he/she will pay a total of $204,710.75 and pay off the loan in 27 years (324 months).  This shaves off 36 months of payments with a savings of $22,832.23 in interest.  Paying a principal reduction in year 6 means nothing, except it worked into my scenario nicely.  You may make a principal reduction in year 2 or year 12.  The point is to make the principal reduction and you are guaranteed to save on interest.

So… what are you going to do with YOUR tax return this year?      

If your principal balance is over $150,000 and you are paying over 6% on your mortgage, you should call your local mortgage consultant.  It costs nothing to find out what options are available to you (in most cases) and could save you a ton of money.

You are also welcome to visit my website www.TXMortgageConsultant.com and use the mortgage and budget calculators to see your own savings scenario.  No sign-up required and no one will follow-up with a phone call.  It is set up for your use only.  

If you live in Frisco Texas or the surrounding areas, give me a call and I’ll be happy to do some comparisons for you.