Refinance Without Risk: A guilt Free Refinance Strategy
Updated: May 27, 2022
With mortgage rates being at unprecedented lows in late 2020 - early 2021, I’ve found that some clients, friends, and family are not taking advantage of mortgage refinance savings that would have a profound effect on their financial future. I often hear two very popular reasons: It’s too expensive or, I don’t want to start over. With a little knowledge, you can utilize refinancing when it is beneficial and avoid risk. Below, I’ll visit these two popular misunderstandings and show one simple refinance strategy that will not only bust these two myths, but almost every concern you could have.
Myth #1: "Refinancing is expensive and Increases the Loan Balance"
This is only true if you are talked into a mortgage that is not right for you. When speaking with a loan officer, communicate your goals so they are not decided for you. If this the cost of refinancing is a concern, there are choices to solve them. The truth is that there is not “one rate” that a lender can offer at any given time. There are a series of rates that are available at any given time. When trying to avoid costs in a refinance, it is best to choose a rate that gives sufficient lender credits to cover some or all costs associated with the refinance so that your overall upfront investment in the loan is minimal.
Yes, in most scenarios there are rate choices that offer lender credits to pay for any costs- including title, settlement, recording fees, etc. A lender credit doesn’t mean increasing the balance of your loan or having to pay out of pocket, it means taking a rate that is higher than the going market rate in exchange for cash to cover expenses. Your advantage here, when the market is favorable, is that you want a rate available that can make the loan “no cost” while still lowering your current interest rate. No, it’s not too good to be true, this is simply taking advantage of economics and using your home as a tool to build wealth and equity over time, without risk.
Myth 2: "Refinancing starts the clock all over again"
If you make the minimum monthly payment- then you will start the clock all over again. If this is your concern, then don’t let it be your purpose.
Many of my savvy clients will refinance and obtain a lower payment but continue to make the same original payment they’ve always had. This has a snowball effect on paying a mortgage down. Every month, additional money is going toward the principal balance rather than interest. This simple technique can potentially save years on a mortgage because you would no longer pay interest on the additional principal payments made month after month. This is an extremely effective way to pay down a mortgage.
Some clients will share the benefit of the lower monthly payment and pay a little extra on the mortgage, so they are still on track to pay it off when they choose.
On the other side, those who truly need the monthly savings for cash flow for a myriad of reasons, will ultimately be starting over. The savings are still prevalent, these individuals are just allocating the savings into their monthly cash flow.
When refinancing it’s important to understand that the “term” is entirely in your control. The minimum payment is just that- a minimum payment.
The No-Risk / High Reward Refinance Strategy
The strategy is quite simple. Ask for a rate that covers 100% of all refinance costs with lender credits. Ensure that your balance does not increase. Continue to pay the same mortgage payment you do today to build equity at an accelerated pace.
The key to effective refinancing is choosing the best rate/fee combination for your scenario. An honest and experienced loan officer is key to making that happen for you. However, if you are ever in doubt- you can always use the “no-cost/no-investment” option when the market permits you to do so- the breakeven point is immediate.
There's more information and refinance tips that I get in to on other articles that are worth looking at- “Breaking down the costs of a Mortgage”, “Understanding Escrow Accounts”, as well as how “mortgage payments work”. To understand the full picture, it is worth looking into these as well.
Get started with a no-pressure/no-nonsense consultation by calling me at 704-944-9059 or learn more at https://mtaylormortgage.com