Have you heard why you’re supposed to cut the ends off a roast before you cook it? My pastor told a story once about a lady who did this and someone asked her why; she said “that’s how my mother used to do it”. When they asked her mother why she did it, her mother said “My roasting pan was too small so I had to cut off the ends for it to fit!” Isn’t it funny how we end up making decisions based on information we’ve gathered without taking into consideration whether the information actually applies to our situation?
As you may already know the overwhelming majority of mortgage applications being taken in the U.S. right now are for refinances. I was talking to a good friend the other day and they told me why they didn’t want to refinance. That gave me the idea to write a newsletter regarding misperceptions I come across while talking to people about mortgage finance. Because there are a bunch of misperceptions I’ll split my newsletter into at least 2 weeks. This week we’ll focus on refinance since it’s the hot topic right now!
“I don’t want to refinance because if I get an appraisal, my taxes will go up”. This person believed that if they had an appraisal done as part of a refinance, the county property appraiser would somehow figure out what the home appraised for and would raise their taxable value resulting in higher property taxes. I’ve been doing refinances for 8 years now in multiple states. I can assure you that the county property appraiser never sees your appraisal. The county property appraiser has his (or her) own methodology to derive a value and doesn’t care in the least what a regular fee appraiser says if you refinance your home.
“I’ve heard you shouldn’t refinance unless you can drop your interest rate at least 2%”. I’m not a crazy lunatic, but if there is one person who I’d love to shake it would be the person that came up with this general “rule of thumb”. It’s ridiculous! I have a client right now that owes about $6,000 on a home. Should that person refinance if they can drop their interest rate from 7.0% to 4.5%? Consider this – it will cost at least $1,200 in closing costs to refinance and this person’s payment is almost entirely going toward principal. For this person to refinance would be simply ridiculous. But the “rule of thumb” says he should refinance since he’s getting a reduction in rate of 2.5%, right? The logic is obviously flawed. What if a person owes a half million? They could recoup the closing cost of 1% reduction in rate in a year and a half! Don’t use a “rule of thumb”, use our Total Cost Analysis to decide if you should refinance. Because it’s customized for you, it’s the real deal!
“I’ve been paying on my loan for over 3 years, I don’t want to start the 30 years over again”. Believe it or not, lenders will allow you to make a larger payment than the minimum required. You don’t have to keep a 30 year mortgage for 30 years! I talked to a person recently that could lower his rate from 6.5% to 5.0%. If he continues to make the same payment he’s been making (thereby paying extra toward the new loan) he can reduce his loan from the current payoff date of July 2037 to July of 2031! That reduces his loan term by 6 years! That’s a savings of over $138,000 over the life of his loan and he didn’t pay a cent more than he is already paying. I’ll bet that would make Suze Orman, Bill Ramsey, or Laura Langemeier happy! You may even be featured on their show, all because you had an “aha” moment while reading this newsletter!
If you’ve had a misperception or desire clarification regarding purchase or refinance mortgages, please reply to this email so I can address those issues in future newsletters. I won’t mention your name unless you want it sent to over 2,000 people…J
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