Many people have adjustable rate mortgages and are considering a refinance to a fixed rate mortgage. I was recently asked for “good, solid advice” on whether a person should refinance their ARM or not. I got a copy of his Mortgage Note and provided insight that I’ll share below.
First, I’ve got to share our quote of the week with you. “I am glad to see that excellent service has not completely vanished from the U.S. Bart went way beyond the call of duty in closing (financing) our (new) home. On top of that he sat with our buyer (of our previous home)to try and rescue them from a big bank’s incompetence. After working to help our buyer Bart even won their business after the big bank left all of us homeless for 2 nights. I will always be a customer! Thanks Bart-we might still be homeless if it was up to the big bank.” Andy C. (borrower) Oct 5, 2009
How does professionalism demonstrate itself? In our business it’s not always through a closing where we earn money, but it always includes bringing value to the customer. Sometimes we get paid, other times not; like in the case of “Jordon”. Jordon has a large loan that is has a fixed rate of five percent. He’s concerned though. You see his fixed rate will expire in February and his rate will adjust because he has an ARM. It would be very easy for me to convince Jordon that he needs to refinance using scare tactics, but we have never done business that way, nor will we ever! We approach everything with an eye toward education and understanding, not revenue generation.
Jordon’s interest rate is based on LIBOR which is currently only about 1.20 percent. In February his mortgage rate will go to whatever LIBOR is plus 2.25 percent. Thus in February, his rate is going to go down to (likely) under 4 percent! His subsequent annual adjustments can only be a maximum of 2 percent per year. Worst case scenario, his mortgage interest rate is going to go from under 4 percent next year, to under 6 percent the following year, and under 8 percent the following year. That’s a 3 year average of less than 6 percent (worst case scenario) and he incurs no cost to achieve that! Since he’s thinking he’ll sell his home within 3-4 years, he has decided to keep his current mortgage. He doesn’t incur any closing costs, and is now approaching his rate change date with confidence that he’s making the right decision!
That is a “Professional Approach to Mortgage Finance”! Do you have an adjustable rate mortgage you’d like us to look at?