Refinancing: Excuses, excuses…

refinance your mortgage for no costAs strange as it may seem, there are still many people who have not taken advantage of today’s ridiculously low mortgage rates, even though these homeowners often have rates far higher than what is available today. Although I hear myriad excuses for not refinancing, I’ll list the most common, along with an explanation of why the excuses are, well…lame.

“I don’t want to start all over with a 30 year loan.” I have heard this many times during my 23 years of mortgage lending. If you started out with a  $300,000 loan at 5.5%, five years ago, your payment would be $1,700 today and the balance will have been  paid down to $277,000. Refinancing that amount at 3.75%, the payment drops to $1,440 without extending the loan term! Or how about reducing the rate to 2.99% and getting a 15 year loan? Yes, the payment will increase—but only by $230 a month. That would be the price you’d pay to shave ten years off your loan term.

“I don’t want to pay all those fees.” Yes, it costs money to get a loan. There will always be costs incurred for title, escrow, underwriting, document drawing, etc. These costs typically amount to around $3,000, and someone has to pay them. These fees, whether you pay them out of pocket or add them to your loan amount, are an investment you make to reduce the cost of your mortgage. You should look at the amount of time it will take to recover those costs with your lower rate. Alternatively, you could select a slightly higher interest rate and receive a rebate from the lender to cover some or all of your costs. This is called a “no-cost refinance.” There is nothing unusual or special about it; any mortgage company or bank can do this.

“I don’t know if I can qualify for a new loan.” In these post-meltdown days, it is more difficult to get a mortgage. While the main qualifier used to be the ability to fog a mirror, lenders today actually want to be sure a borrower has the ability to make the payments. So anyone applying for a mortgage must document income, employment and assets and have reasonable—not perfect— credit. Contrary to what many have experienced, loan decisions are rendered within one or two days, not weeks or months. Any competent loan officer can look at a borrower’s application and predict on the spot whether they have a chance at being approved. Isn’t it worth at least knowing?

“I don’t know whether my home will appraise, and I don’t want to waste the money on an appraisal.” Although the real estate market is definitely showing signs of appreciation (around 7% nationwide, higher in the Bay Area), there are still many homes with negative equity. For some homeowners, the HARP refinance program can be a godsend; they can get a loan at today’s rates even if they are seriously underwater. No appraisal is even required for these loans.

But what about those who don’t qualify for HARP? An appraisal costs over $400 these days, and that’s a lot of money pay to learn you don’t have 20% equity. This is where an Automated Valuation Model  (“AVM”) can set your mind at ease. Think of the AVM as Zillow on steroids. The computer searches out the properties most like yours, then comes up with an estimated value and a confidence score. The AVM can save the cost of a full appraisal in your decision to proceed. An AVM is not completely foolproof, but it will at least give you an idea. It will cost about $20.00. Your friendly neighborhood loan officer should be able to help you with this information.

Did I mention I’m in the neighborhood? And that I am quite friendly? Well, now you know.

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