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 2012, 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.
It’s now May of 2014 and I’m in the process of refinancing my mortgage again and getting a new one because I’m buying a new property in Golden Gate Heights in San Francisco. Despite the 10-year yield rising to around 2.6%, mortgage rates have stayed flat to come down because margins have also come down. This is GREAT for consumers.
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 LendingTree. At the time, I had no idea what LendingTree was because I had always focused on refinancing with the traditional banks in Bank of America and Citibank. I thought LendingTree 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 LendingTree 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 and find the best mortgage rates for you given their massive network. 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 good luck.
On the 58th day of my 100 day mortgage refinance saga, my friend informed me his loan had closed! His mortgage refinance with a LendingTree loan 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 LendingTree 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. LendingTree not only matched the rates I received, they referred a lender that 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%.
Shop around for a mortgage. LendingTree Mortgage offers some of the lowest refinance and new mortgage rates because they have a huge network of lenders to provide mortgage loans, home equity loans, and home equity lines of credit. If you’re looking to buy a new home, consider using LendingTree to get multiple offer comparisons in a matter of minutes. Interest rates are back down to all-time lows in 2015 due to volatility in the stock market, low oil prices signifying weak global demand, and chaos in Europe. When banks compete, you win.
Check Your Credit Score: Take a moment to check your free credit score through GoFreeCredit.com, a company I trust. Over 30% of credit reports have errors which can really bring down your borrowing capabilities. I once had a $8 missed utility bill payment which crushed my credit score by over 100 points! Save yourself some serious mortgage hassle and delay by knowing what your credit score is beforehand. Don’t waste your time by applying for a mortgage without knowing your credit score first.
I’m personally refinancing my primary residence again in 1Q2015 to a 2.25% 5/1 Jumbo ARM. I can’t believe how cheap rates are!
Photo: My box of mortgage refinance papers over the years. SD.