Mortgage Refinance Strategies And Points You Should Understand
Alas, after 8 weeks my primary residence mortgage refinance is now done! It took so long that I actually forgot I was refinancing my mortgage until the bank called to ask when I could meet the notary to sign all the documents.
The process was pretty painless since I refinanced with the same bank. I sent them the general paper work such as my W2, bank asset statements, and pay stubs. They did one appraisal which took all of 20 minutes and all I had to do was wait four more weeks to get it done! The refinance this year was much easier than the refinance in 2010, boding well for the thousands of others out there who are also looking to refinance their mortgages.
I learned some new things beyond the basics which you might find useful in your mortgage refinancing or initial mortgage application process.
MORTGAGE REFINANCE TIPS TO THINK ABOUT
* Try and refinance with the same bank. If you go through the same bank, you might get some extra discounts given you are an existing customer and they want to keep your business. In my case, they gave me an extra 3/8 credit and waved the $750 home appraisal fee so that there were no out of pocket expenses. Furthermore, they had all the basic paperwork already and just needed some updated forms. Staying with my existing bank made things much easier.
* You have one free pass. Even after you “lock” in your mortgage, once your application gets approved you are able to ask for a lower rate if rates decline in the application approval process. When I locked my 3.25% 5/1 ARM rate, the 10-year yield was at 2.1%. Not bad I thought. In the next two weeks, the 10-year yield plummeted to as low as 1.75%, or a full 35 bps lower. Rates were very volatile and settled somewhere around 1.88% when I asked if they could lower my rate further. They said yes, and lowered my rate to 3.125%.
* ARM loans are assumable. Let’s say I want to sell my primary place in two years and 5/1 ARM rates rise to 8.125% due to inflation and a recovery in the economy. If the buyer qualifies, s/he can assume my 5/1 ARM at 3.125%, thereby saving 5% in interest expense! A lower mortgage rate is a huge benefit to the buyer because it allows the buyer to pay more or get more home. In effect, you have shorted a bond in the amount of your mortgage and will capitalize on the gain.
* Title insurance is extremely important. In fact, title insurance is like the bible for your property. A title insurance policy is a contract of indemnification for loss by encumbrance, effects in the title, or invalidity, or adverse claim to the title to the real property that may occur prior to the effective date of the policy. In other words, the title company guarantees the veracity of the property you are purchasing or selling. If there are any discrepancies or disputes, the title insurance company will fight for you. Make sure you keep a copy! You never know who will try and make an adverse claim on your property 30 years from now.
* Leverage the internet. The internet has made finding the best home mortgage rates easier than ever. It’s like going to Best Buy and checking out the products but buying them online for cheaper. Online mortgage firms like Quicken Loans have much smaller overhead costs compared to bricks and mortar banks. As a result, they can pass on their savings to their consumers.
If you haven’t considered refinancing and can, please do so. Rates from all along the curve are down by at least half a percent since 2010, which is the minimum spread you should consider before refinancing. You must take advantage of the Federal Reserve’s policy of pushing rates lower. Improving your cash flow is what it’s all about in personal finance!
Recommendation: Some of the lowest mortgage rates I’ve seen are by Quicken Loan. I’ve know at least 30 people in 2012 through Quicken Loan and with some incredible rates of below 4% for a 30-year fixed and below 2.875% for a 5/1 ARM. I’ve applied before and got matched 2.625% for my 5/1 jumbo ARM. It’s worth applying today to see if they can at least beat your existing mortgage rate since Quicken Loans is entirely online and there’s no obligation. Less overhead costs means more savings to you! Thank you QE3 and Ben Bernanke!