Because I have several properties (primary, rental, vacation/rental, vacation), people ask me all the time how often they should refinance their mortgage. My answer is always, “As many times as it takes to save you money!”
I’ve refinanced my primary mortgage four times in seven years and I won’t stop as long as rates keep going lower. The Federal Reserve has conducted so much monetary easing over the past 10 years that everybody with a mortgage should have refinanced at least a couple times!
In the fall of 2011, I refinanced my jumbo 5/1 ARM at 3.625% down to 3.125% with no fees or cash outlay. It took about 70 days, but it was well worth it because I only had two years left before my fixed rate expired. My interest payments went down by a several hundred bucks.
I thought I was set for another five years until I checked again at the end of January, 2012 when the 10-year yield dropped to 1.85% from 2%. To my surprise, I discovered I could refinance AGAIN just 5 months later. This time, at a rate of only 2.625% for 5 years! Banks began lending again, sacrificing margins for market share.
Although my mortgage refinance took around 100 days to complete, I’m now so thankful that it’s done because I no longer have a W2 paycheck, making it brutally difficult to ever refinance or get a mortgage again! By taking action, I’m able to save around $20,000 in interest expense over the next five years.
THE BIGGEST DETERRANTS TO REFINANCING A MORTGAGE: KNOWLEDGE, FEAR AND LAZINESS
The entire mortgage refinance process seems daunting for the inexperienced. I have many friends who are eligible to refinance and happy to pay their 5.5% 30-year fixed rate mortgage they took out five years ago because they don’t know where to start! They are crazy for leaving so much money on the table because 30-year fixed rate conforming mortgages are now at 3.75% or below! By refinancing down to 3.75% from 5.5%, they would save $8,750 a year in interest expense on a $500,000 mortgage.
I finally got one of my friends to join me to refinance their mortgage this past Spring. However, instead of going with my guy at Citibank, he went with Quicken Loans. At the time, I had no idea what Quicken Loans was because I had always focused on refinancing with the traditional banks in Bank of America and Citibank. I thought Quicken was just a finance software company, and I wanted to see the eyes of my mortgage officer and shake his hand so he wouldn’t screw me.
Because Quicken Loans is an online company, they do not have the overhead costs that the traditional bricks and mortar banks have. As a result, they are able to pass along some of their savings to their clients. My friend was able to match my rate of 2.625%, get a small credit, and do everything online. He felt comfortable with the process so I wished him goodluck.
On the 58th day of my 100 day mortgage refinance saga, my friend informed me his loan had closed! His mortgage refinance with Quicken Loans closed a full month before mine did and I was getting annoyed as hell because I was going bonkers waiting so long for my guys to get done. Of course there was this whole PG&E utility bill fiasco that delayed my closing by another 10 days in the end as well.
Pretty soon, several other colleagues and friends started mentioning Quicken Loans with rates even lower than what I was getting. I always thought I was special, getting the lowest rate with Citibank since I have a 11 year relationship with them. I’ve also got several hundreds thousands in savings with them as well. Quicken Loans not only matched the rates I received, they closed in a shorter time period. Of course each case will be different, but based on what I’ve seen, the bricks and mortars banks are in for a lot of competition.
If you haven’t checked the latest mortgage rates in the past 6 months, I highly suggest you at least get a mortgage rate quote online or offline. I’m pretty sure rates will be much lower than what you’ve got now.
MORTGAGE RATES HAVE BEEN ON A 30 YEAR PATH DOWN
ONLINE COMPANIES ARE MAKING A POSITIVE DIFFERENCE
The hesitancy with dealing with online companies is fading and that’s great for consumers. For example, I have never met my USAA bank representative in person, yet I’ve opened up three CDs with them because their rates at the time were so much higher than everybody else thanks again to lower overhead costs.
For future mortgage refinances, I’m going to always at least check with online companies before making a move. It’s the same concept as checking out a product’s price on Amazon for the lowest rate, checking out the product in real life, and then going back online to buy the product!
If you haven’t refinanced your mortgage in the past year, you need to at least check the latest real rates to see where you stand. With the 10-year yield now at 1.5%, 30-year conforming fixed mortgage rates are now 3.56% and conforming 5/1 ARMs are down to 2.5%! If you want to go really short-end, you can borrow like Mark Zuckerberg and do a 1-month LIBOR floating rate under 1.25%.
Readers, how many times have you refinanced your primary home mortgage? When was the last time you got an actual mortgage rate quote check that you could act upon?
Photo: My box of mortgage refinance papers over the years. SD.
Important: If you do a refi through Quicken Loans or any company, make sure to clarify with them about the loan application fee and whether it is reimbursable if your loan does not go through. I make sure to get the terms up front and to get reimbursed should they say the mortgage refi will go through and something happens.