Time to Refinance? Probably Not – Despite all the advertising, Most Home Owners may not benefit from Refinancing at this time
Here we go again …?
Dear Friends, first I will apologize for the constant bombardment of advertising and commercials done by my industry. It seems at least to me, that there are countless lenders, encouraging people to refinance, even when it may not be in their best interest to do so. You’ve heard all these commercials, over and over … Harp loan this, space ship loan that, and Veterans – please borrow up to 100% of your home’s value with us, just because you can.
For those of us in the mortgage business, and knowing what’s real and what isn’t, some of us believe there’s a possibility that many lenders are marketing programs that they potentially know will only be able to serve a very small percentage of homeowners? It makes you wonder if their goal is to get the phone call, or online application, then to convert the borrower to a different program? These marketing practices are starting to remind me of what we saw leading up to the 2008 housing bubble.
Thankfully, the fundamentals are nothing like what see caused the market collapse in 2008.
- Our industry does not have the wide availability of “No-Doc” or “Stated Income” loans anymore.
- Our industry also does not have as nearly forgiving of underwriting standards as we did leading up to the 2008 bubble.
- Our industry does not have all the exotic, and confusing adjustable rate programs, and “interest only” loans as we did leading up to the 2008 bubble.
- Our economy does not have a declining manufacturing base that helped lead to the perfect storm in 2008. On the contrary, employment is expanding.
- Our average homeowner is more astute now. We learned our lesson from 2008 housing bubble. Equity matters.
This is not to say that refinance opportunities do not exist which are beneficial for some people. As we head into the new year, 2018, here are the major factors that I see one would consider if they were to refinance:
- Reducing interest rate & term from 30 years to 15 years
- Reducing interest rate & eliminating PMI
- Removing another person from the mortgage for contractual reasons (ie., divorce, or business split)
- Getting “Cash-out” to borrow more than the present mortgage, for debt consolidation *
NOTE: * The debt-consolidation is the potential trap that homeowners can fall into as home values continue to rise, year after year. Using your home’s equity to pay off non-tax deductible, higher interest rate loans and credit cards can prove to be wise. However, we know that this practice, repeated over and over can end up being detrimental. Fortunately, most of the loan officers churning the cash-out refi’s, and subprime loans leading up to the bubble in 2008 are out of the business. Some may have stayed and have learned to reinvent themselves? Be careful, because past marketing practices that were once successful may resurface now that many homeowners have plenty of equity.
NOTE: * If you really feel that you need to tap into the equity in your home, consider a Home Equity Loan (or HELOC) as an option. Unless you can reduce the interest rate and/or PMI on your first mortgage while getting a “Cash-Out” refinance, a HELOC will often result in being much more cost effective than a “Cash-Out” first mortgage which has more fees, and more paper work. And who likes fees, and who likes paper work?
As my past clients will attest, over the years when they have inquired, I have often talked them out of refinancing. My past clients know however, that I’ve got their back, and when rates and/or programs change to where a refinance should benefit them, I reach out them and run the numbers. I discuss the numbers with them with them so they fully understand them, and probably 9 times out of 10, they elect to go through with the refinance.
As a past client, or someone referred to me from a past client or Realtor, if you think that a refinance may work for you, please feel free to contact me anytime, and I will gladly do a precise, cost-benefit analysis for you. It will be the same type of cost/benefit analysis I do for every client of mine that refinances with us.
Also, if you know of someone who is looking to get into the housing market this coming year, please pass my name and contact information along. We will be working and on call through this Holiday Season. We greatly appreciate your referrals as our source of business! Thank you for everything, Happy Holidays to you and yours. ~ Bob Hein