Recently, I’ve found myself talking about refinancing to former clients and friends. Sure, I can help clients looking to purchase a home find the BEST terms possible for their financing. But I’d also like to think I have knowledge to share for when those past clients or friends are looking to lower their mortgage payment! In this post I’ll share some of the reasons and benefits people choose to refinance their home mortgages. In addition, I’ll share a real life example of how sideways things could get if you don’t know what you’re doing, or who you’re working with… and the benefits when you’ve got a team who’s really looking out for your best interests!
What are some of the reasons people choose to refinance their home loan?
- Lowering your interest rate, will lower your mortgage payment
- Depending on when you financed your purchase, rates may be lower today and you could benefit by doing a refinance by locking in a lower rate. Doing so will lower your monthly mortgage payment.
- Do you have an ARM (or an adjustable rate mortgage)?
- Refinancing before the adjustment kicks in may help you avoid the adjustment going to a potentially higher rate.
- Did you put less than 20% of the purchase price down at your home purchase and you currently have PMI (Private Mortgage Insurance) added into your monthly payment?
- Time, as well as, completing updates which increase the value of the home are great ways to get your PMI dropped from your payment with a refinance.
- Did you pay cash for updates and want to roll those updates into your payment?
- Did a dramatic life change alter your finances?
Note: If you fall into any of the above reasons, and have questions… PLEASE reach out to me directly. I can help explain things and also connect you with a local loan officer to answer the technical questions. Because, Disclaimer… I’m not a licensed loan officer… I just really try to understand the process so I can be an asset to my clients who are buying and all of my former clients!
So…why is a local loan officer necessary or important? Let me tell you, with a real life and personal experience!
My dad passed away last year. While his passing was one thing to deal with, it wouldn’t be the only thing my mother and I faced in the last year. My parents were both retired. My dad collected survivor benefits from his first wife after she passed away from cancer 26 years ago. He also had two pensions and collected social security. My mom had her pension and also collected social security.
When he passed, all of their collective debt remained, but a large portion of the income the two of them collected, went away (my dad’s social security, survivor benefits and a portion of his pensions were reduced for “survivor benefits). My mom was left with two car payments and a home equity line payment. In addition to these, she paid property taxes and insurance in one-lump sum when the payments were due twice a year.
We both knew something needed to be done to help her financially.
She went to her local bank (read, rural area, where the tellers and managers actually know the members by name). She explained her situation. The manager did some quick analysis and determined my moms debt-to-income was too high for them to get her a new loan.
She was devastated. This was the first time in her life she’d ever been denied any credit.
I called my friend, Melissa Al-Rifai at Bell Bank. Melissa had done a refinance for me in the past and I remember her telling me that she was now able to do additional states. Fortunately, Michigan WAS one of the states she could work in. We went to work.
Refinances, like mortgages, require a LOT of papers by the lenders. I helped my mom get all of the information she needed to Melissa and her processor. Death certificates, pay offs on her car, my dad’s jeep, credit card statements, insurance premiums, property tax assessments, bank statements, tax returns… all of the things.
We were at the finish line. The Closing Disclosure was issued. I reviewed, as a daughter, but more importantly as a REALTOR®. Things weren’t adding up. In fact, the closing costs were about 2x the amount I’d expected to be paying. I took all of her paperwork back out and began double and triple checking things.
Taxes. Why were they taking so much in taxes? I called the Title Rep in Michigan.
Him: “Oh, it’s because your neighbors are delinquent on their taxes.”
Me: “What’s that have to do with OUR refinance?”
Him: “Well, since you’ve acquired some of their land in your adverse possession claim… those portions have to be insured for clear title. The only way we (or anyone else) can do that is if you pay those delinquent taxes.”
Now, I know what you’re thinking… why in the name of puppies and music festivals would you ever pay someone else’s taxes. Especially when those taxes are taxed on 39 acres of land… and you have 1 acre? Don’t worry. I didn’t. I called Melissa immediately. She told me she’d get to the bottom of it. But it might mean we weren’t closing the following week.
We ended up closing about 3 weeks later. And didn’t pay for anyone else’s property taxes.
There’s two huge takeaways from this for me:
- My mom had the upperhand in this because someone who understood the financial side of things was a second set of eyes she could trust to be looking out for her best interest. That upperhand saved her about $1,500 that she would probably have paid. Because she wouldn’t have had an inkling of an idea of how much cash she’d be required to bring to close. Or how to thoroughly check that Closing Disclosure from her lender.
- If we were using a big bank like Chase, Wells Fargo, etc… we likely would have been forced to either close and pay the additional $1500 for our neighbors delinquent taxes OR we would have had to cancel the application all together and lost time, money on the appraisal and certainly my patience.
The benefit to my mom in doing all of this, was that her equity line, car payments and credit cards were paid off with her refinance. The rate on her mortgage was lower than the rates on the financing on any of the things she had paid off. And to help with her “fixed income” – her property taxes and insurance are included in an escrow account so she’s paying the same amount every month… and isn’t hit with large bills that she’d likely forget to save for! Most importantly she’s comfortable with where her payment is at!
If you think you need some guidance in the refinance process, I’m happy to:
- Help and explain where I can
- Provide a CMA (Comparative Market Analysis) … if you’re in an area I’m licensed to work in. If you’re not in my area – I can scour my network and find someone who IS in your area and may be able to help you.
- Put you in touch with a lender who will have your back, will be clear, transparent and fair about origination fees, points and closing costs! Again, even if you’re in an area where you don’t think I’d be able to refer someone… just ask. Chances are, I can find someone and will be happy to personally vet them for you!
If you’re looking to buy, sell or invest please reach out to me directly at firstname.lastname@example.org – I’d be honored to be a part of your team and you have my commitment to be an asset and bring you value through the process.
As always, if you found value in this post, please comment below!