Slicing Through Money's Mysteries
Out of all the mortgages out there, a 15-year mortgage will likely save you the most amount of interest. 15-year mortgage rates are almost always lower than 30-year fixed mortgage rates.
Further, because the mortgage fully amortizes across a 15-year duration, you will likely pay off your mortgage sooner than if you had a 30-year amortizing mortgage.
The beauty of an economic downturn is cheap credit. And when there is a global pandemic, mortgage rates tend to go dow. As a result, every homeowner should be refinancing their mortgage right now as rates hover near all-time lows. Here are some home mortgage refinancing tips from someone who has refinanced many times.
Since 2003, I have refinanced five properties over a dozen times. These home mortgage refinancing tips are straight from experience. As a result you can pay the lowest fees and get the lowest interest rate possible.
Check the latest mortgage rates online through a marketplace like Credible. They have one of the largest lending networks around. There’s no obligation and you’ll get real quotes from qualified lenders in minutes.
Refinancing can be a daunting process, but it shouldn’t be with the right representative and proper frame of mind.
I refinanced my primary residence in 4Q2019 with a 7/1 ARM at 2.625% with no costs. In 2020, I got preapproved for a 7/1 ARM at only 2.125% because interest rates declined even further!
I do have relationship pricing because I’ve got over $1 million in assets with the lender. But even if I didn’t, I could get a 7/1 ARM for only 2.5% in 2021+.
As someone who has refinanced over 10 mortgage loans since 2005, let me share with you my mortgage refinancing tips to help you get the best rate possible.
Before buying a home in the midst of a pandemic, you need to understand the state of the mortgage industry. This information is vital if you want to make the best purchase possible with the information available.
In 2021, as we gradually get out of the pandemic, the state of the mortgage industry is getting better. Lending standards are still very tight. However, banks and lenders have hired more people to meet robust demand. As a result, bank spreads have narrowed, which is good for the consumer.
I’ve kept in touch with the mortgage lender representative who refinanced my previous home in 2019. He works for one of the top five largest banks in the country and is a top 20% producer in his department. In other words, he knows exactly what is going on in the mortgage market from the inside.
If you doubt my assertion that real estate is heating up, mortgage-purchase applications reached an 11-year high. The intent to buy property is very strong for properties hovering around the median price.
The ideal mortgage amount was $1,000,000 before the Tax Cut & Jobs Act was passed for 2018 and beyond.
The reason why $1,000,000 was ideal was because that was the mortgage limit for where you can write off the interest. Today, that ideal mortgage amount is $750,000 because $750,000 is the maximum mortgage you can take to be able to write off the mortgage interest.
Back in 2002, a $1 million mortgage cost around $50,000 to $65,000 a year in interest expense given mortgage rates were 5%-6.5% for a 5/1 ARM or a 30-year fixed. Multiply the annual interest expense by three, and you get $150,000-$195,000, the minimum annual income recommended to take out such a loan.
In 2021, a $1 million mortgage costs around $20,000 to $30,000 a year in interest expense given mortgage rates are now 2% – 3% for an ARM or for a 30-year fixed. Interest rates plummeted to all-time lows due to coronavirus fears. However, interest rates are finally ticking back up as the economy reopens.
Multiply the annual interest expense by three again and you get $60,000 to $90,000, a far cry from the $150,000 – $195,000 in income you originally needed to make! As a result, buying real estate looks attractive in 2021+ because affordability has gone way up! You no longer need as high of an income to afford the same property.
If you’re focused on paying off your mortgage, good for you. It’s generally always good to pay down debt. However, I’d also like to share with you the biggest downside to paying off your mortgage that may surprise you.
It’s been six years since I paid off my rental property mortgage. It was a mortgage for $464,400 I took on in 2003.
For the first year after paying off my mortgage, I felt great. But after that, the satisfying feeling of getting rid of debt wore off.
Perhaps the reason why the feeling was so ephemeral was because there was no congratulations card or fancy French Laundry dinner celebration. The only thing that changed was the extra ~$2,500 a month in cash flow, which went straight to savings or investing.
Before taking on this mortgage, I experienced an eerily similar feeling of ambivalence in my early 20s. After working for 60 – 70 hours a week from 1999 – 2001, while saving 100% of every bonus and 50% of each paycheck, I started thinking: what’s the point of it all?
Maybe I was experiencing a quarter life crisis back then. What I did know was that my enthusiasm for working in finance faded after the September 11, 2001 terrorist attack.
In 2003, with my lack of enthusiasm, I was *this* close to leaving San Francisco for Honolulu until I found a 2/2 condo overlooking a park in Pacific Heights for $580,000. Once I took out the $464,400 mortgage, my motivation to work hard shot through the roof!
Suddenly, my work felt more meaningful because if I stopped paying my mortgage, I’d lose my $116,000 down payment and trash my credit score. Without dependents, finally, I had something tangible to work hard for.
Refinancing a mortgage today is a smart move because interest rates have fallen to all-time lows partially due to the coronavirus pandemic. This post will teach you how to get the lowest mortgage interest rate possible to save money.
Thankfully, homeowners have gained a huge amount of equity since 2012. They aren’t going to foreclose or short-sale for nothing. In fact, I think 2021 and beyond is a good opportunity to buy real estate due to rising affordability and an underperformance in real estate prices compared to the S&P 500 in 2019 and 2020, which was up 31% and 16%, respectively.
I’ve refinanced multiple mortgages across multiple properties since 2003. I also recently refinanced my mortgage in late 2019 and got a new mortgage for only 2.125% in 2020. Here are my strategies for how you can get the lowest mortgage rate possible.
Back in 2011, I decided I wouldn’t pay off my mortgage until I retired. I was still working in banking and had a strong amount of cash flow. I thought I was going to work for at least another five years. Then, in 2012, I retired by negotiating a severance package that provided for six years of living expenses.
What transpired was interesting. I ended up paying off one condo mortgage in 2015 and selling my primary residence in 2017, which ultimately paid off its $815,000 mortgage as well.
Today, my family and I live in a home we bought in early 2019 with cash. We are full-time parents and part-time writers. It feels great not to have a mortgage in retirement.
Let me share my reasoning from 2011 on why I didn’t want to pay off my mortgage until I retired. Back then, I was a 33-year-old Executive Director who was focused on career growth. However, I was also starting to burn out.
When there are mortgage market abnormalities, we must take advantage to get the lowest rate and best terms possible.
Currently, there are two mortgage abnormalities today to be aware of:
1) The average 15-year mortgage rate is way below the average 5/1 ARM and 7/1 AM rate. Therefore, you should take advantage.
and
2) The average 30-year mortgage rate has been lagging behind while the 10-year bond yield has been going up. Therefore, the 30-year fixed rate mortgage looks very enticing as well.
As a result, if you are looking to refinance your mortgage or are buying a house, get either a 30-year fixed or a 15-year fixed. Both are offering the best value out of all the mortgage products that current exist today.
Credible is my favorite place to refinance a mortgage or get a new mortgage. You’ll get real, no-obligation quotes from competing lenders in minutes. Take advantage of the current mortgage market abnormality!
So you are shrewdly considering investing in real estate outside your state. Good news. Yes, you can get a mortgage in one state to buy a property in another state.
Many people are now considering moving to a lower cost state due to the acceptance of working from home. At the same time, more people are considering moving to California and other states with high vaccination rates and low coronavirus rates. It’s an interesting dynamic!
Due to the extended lockdowns, I’m more motivated than ever to relocate from San Francisco to Honolulu. I have been looking seriously at Honolulu property since 2015 and I’m finally seeing some great deals in the area.
My logic for moving is this: If I’m going to shelter-in-place for months on end in the future, why not shelter-in-place in a nice property that has plenty of land, lots of indoor space, a pool, a hot tub, a garden, good weather, and is close to the beach?
When you have kids, you crave for as much space as possible to enable them to run around and have fun. Hearing their screams of delight is so wonderful.
Given we have enough passive retirement income to sustain our lifestyle, there’s really no need to remain in expensive San Francisco.
Are you wondering why does it take so long to refinance a mortgage? The simple answer is because lending standards have tightened tremendously since the financial crisis. Underwriters are asking for more documentation to prove your income and net worth.
The banking sector lent too loosely before the crisis. As a result, regulators locked down. Now the banking sector has increased their lending standards tremendous.
In 2021 so far, the average credit score for an approved mortgage applicant was 760. And in order to get the lowest mortgage rate possible with the lowest amount of fees, you need a credit score of 800+.
Further, many banks are requiring at least 20% down, especially if you are going to take out a jumbo loan. The mortgage lending industry has really tightened, especially during the pandemic. The lending industry doesn’t want to go back to the 2008-2009 financial crisis days where they experienced a wave of defaults from borrowers who couldn’t afford their mortgages.
