How To Get The Lowest Mortgage Interest Rate Possible

This post will teach you how to get the lowest mortgage interest rate possible to save money. Mortgage interest rates have increased by roughly 2% since the start of 2022. Therefore, it's more important than ever to position yourself for a lower rate.

Thankfully, homeowners have gained a huge amount of equity since 2012. I think 2023 and beyond is a good opportunity to buy real estate as home prices slow and there are more opportunities for well-qualified buyers.

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 after buying a forever home. Here are my strategies for how you can get the lowest mortgage rate possible.

How To Get The Lowest Mortgage Rate Possible

Here are my tips for helping you get the lowest mortgage interest rate possible. The reality is, well-qualified borrowers are getting much better terms than what the averages are stating. So if you've got a high credit score and low debt-to-asset ratio, you should do well.

1) Pressure your existing mortgage lender

The easiest course of action is to ask your existing mortgage lender if they can lower your mortgage rate. After all, they don't want to lose your business to a competitor.

I called Citibank, the bank that has my $1 million loan, and asked what they could give me. They first said 3.125% for a 7/1 ARM, which was OK, not great.  I pressed them to give me a deal as a CitiGold client, so they brought the rate down to 3%. Not bad, but I wanted under 3% with no fees. So I told them I'd get back to them.

Your existing mortgage lender should want to do repeat business with you if you've been paying on time. They have your credit history. They want to keep you as a customer. And, they want to cross-sell as many financial products to you as possible.

2) Shop around online.

I then checked for mortgage quotes online to see what their lenders could come up with. Within three minutes of filling out the application, I was contacted with attractive mortgage rate offers.

Shopping around for a mortgage online is definitely the most efficient way to get multiple competitive quotes in minutes.

3) Track down your old mortgage officer

The mortgage officer who first helped you refinance your loan might have moved elsewhere. If so, track him or her down and tell him or her you'd like to do business.

Mortgage officers at new banks would love to win over business from their old bank. As a result, they may often given you a better rate. It's worth starting a new application with a new bank so you have something in writing to negotiate with your existing mortgage lender.

4) Dangle the carrot to do more business.

Banks are all about cross-selling you products. Not only do they want to refinance your mortgage, they'd also love for you to open a savings account, a business account, an investment account, a Home Equity Line of Credit, and more.

You want to dangle the carrot by telling the lender that if they match or beat a certain rate, you plan to open up several new accounts. As good faith, you can open up a simple account such as a savings account, especially if they have a promotion.

Banks want sticky clients with multiple accounts for cross selling and revenue generation purposes. There is no legal quid pro quo that banks can use to get you better terms. But every big bank has a tiered client system in place where clients with more assets get better access, rates, and benefits.

Always Refinance Your Mortgage When You Can

We live in a goldilocks scenario. Nt only have real estate prices and stock prices gone up since 2009, mortgage rates have come way down. Always refinance your mortgage when you can breakeven in under 18 months and plan to own your property for years to come. The sooner you can break even, the better, obviously.

You can calculate your break even time period by taking the cost to refinance your mortgage and divide it by your monthly interest savings.

My favorite way to refinance is through a no-cost refinance. The lender pays for all your fees so that as soon as your new mortgage closes, you'll be saving money immediately.

There's technically no such thing as a no-cost refinance since the borrower ends up paying a higher mortgage rate. But if the new mortgage rate is lower than your previous mortgage rate, then you've got nothing to lose refinancing, except for your time.

Let me share some more information that I think will help every single mortgage refinancer and borrower. Knowing this information will help you get the lowest mortgage rate possible.

Inflation And Mortgages

Knowing when to refinance is like being a bond trader. Bond traders obsess over inflation assumptions, and you should have at least a basic assumption as well. There has been tremendous monetary expansion since the economic downturn, which should ultimately lead to higher inflation.

Basic economic theory says that for every new $1 dollar bill printed, there will eventually be a $1 increase in prices in the overall basket of goods. The key word is eventually, which could be decades away.

So many Wall Street veterans have gotten inflation and interest rates wrong over the past decade by calling for a rise in interest rates.

I am a firm believer that interest rates will stay low for a very long time because there's still a lot of slack in the system, a lot of volatility in the global markets, and there's also very efficient monetary policy around the world thanks to technology.

Technology and diplomatic relationships allow Central Bankers to coordinate monetary policy in an effective manner to guide desired inflation and interest rates. When Central Bankers don't coordinate, like when the Swiss government decided to depeg from the Euro, that's when chaos ensues.

However, when inflation is temporarily elevated, many mortgage holders have negative real mortgage interest rates. If this is the case, it's best to hold onto your mortgage and not pay down extra principal. It's best to let inflation whittle down the cost of your debt.

Based on mortgages by interest rate, over 90% of mortgage holders have mortgage rates below 5%. Therefore, in a high inflationary environment, the vast majority of mortgage holders should just pay their regular monthly mortgage payment.

Adjustable Rate Mortgages

Those with adjustable rate mortgages (ARMs) are this century's winners because rates are resetting at equal to lower levels than when they were originally fixed. Those who've been borrowing with 30-year fixed mortgages have been losers because they've been paying 1-2% higher interest rates than necessary.

Sure, there is perhaps more peace of mind knowing that your mortgage interest rate is fixed for the life of the loan. But most people either pay off their loans in under 30 years or move every seven years. Bankers push people into fixed rate mortgages because they can earn a higher spread.

Inflation has been coming down now for over 30 years, and I see little reason to expect inflation to suddenly jump higher given the tremendous output gap in the economy. If inflation does start rising, at least you know that your assets are by definition also rising in nominal value.

The figure to watch is the 10-year US treasury yield. The spreads between treasury yields and bank mortgage rates have narrowed since the crisis. Most long term duration mortgages are related to the 10-yr bond yield, hence whenever you see the stock market crashing, watch bond prices rise, and yields fall. This is the exact time to refinance.

Duration And Mortgages

In an ideal world, it's best to match the time it will take for you to pay down your mortgage and the fixed duration of your mortgage once you've made assumptions about inflation and interest rates.

For example, if you need 30 years to pay off your mortgage, then it's probably most prudent to get a 30-year fixed mortgage, even though the interest rate is higher than an ARM mortgage.

But let's say you've got assets elsewhere you could easily sell to pay off your mortgage if you wanted to. Then, you should consider getting as short a duration mortgage as possible to save on interest cost.

For example, many multi-millionaires I know borrow based on a 1 year ARM where interest rates are 50 basis points lower than a 3/1 or 5/1 ARM. If interest rates rise drastically after the 1 year ARM is over, the borrow can simply choose to pay down the mortgage.

If you look at mortgages in places like Hong Kong and Singapore where property fever is high, almost everyone borrows at a 1 year fixed rate that floats after. The US is a special country which not only has mortgage interest deductions, but also fixed rate loans of varying lengths.

Understand The Yield Curve To Get A Lower Mortgage Rate

Given the yield curve is generally sloping, longer duration loans have higher interest rates.  This is a truism for the most part, except during times of extreme economic duress, where the yield curve flattens, or inverts given people want their money as liquid as possible.

Assuming a normal upward sloping yield curve, you will pay a higher rate for a longer duration mortgage.

However, in 2019, the yield curve inverted, portending to a potential economic slowdown. Then we saw the stock market sell off by 32% from peak to trough in March 2020!

In 2022, the yield curve is upward-sloping, portending to housing market strength, even though the prices are slowing. After all, the S&P 500 is in bear market territory.

When the yield curve flattens or inverts, you must take advantage of borrowing at longer durations and saving at shorter durations.

Yield Curve 2021

Refinancing Costs

The are a bunch of costs that go into refinancing, which unfortunately eat into the savings of refinancing. The way to think about costs is to get the total cost of refinancing divided by the monthly savings of refinancing to see how many months it takes to break even.

For example, let's say it costs $3,000 to refinance a $400,000 loan from 5.25% to 4.25%. Your monthly payment goes from $2,375 down to $2,135 for a savings of $240. Take the $3,000 in refinancing costs divided by $240 = 12.5. In other words, it takes 12.5 months for your cash flow to start benefiting from a refinance.

If you plan to take 360 months (30 yr fixed) to pay off your mortgage, your actual savings would be $83,400 (347 months X $240) making the $3,000 cost to refinance a no-brainer. Ironically, you save less if you pay off your loan quicker from a refinancing stand point. From a bank's point of view, this is called “prepayment risk.” They don't want you to pre-pay because they want to make as much money from you for as long as possible.

Savvy readers will realize that there's a difference in cash flow savings vs. interest savings. Even though my $1 million mortgage refinance will drop down to a $3,882 a month payment from $4,338, the $456 a month savings is not all interest savings because I'll be paying less principal as well.

Calculate The Interest Savings

The easiest way to calculate the interest savings is to take the mortgage amount and multiply it by the difference between the interest rates e.g. $1,000,000 X (2.625% – 2.25%) = $3,750. Now take the cost of refinance and divide it by the interest savings to calculate a truer break even number.

You can also ask your mortgage officer what the cost would be to refinance at a higher rate. In this example, you could get a “credit” to your costs if you refinanced for 4.75% instead of 4.25%, thereby having less money leave your pocket.

The general rule of thumb is that if you plan to stay in your house for over 5 years, and it costs no more than 20 months until you break even, you should refinance. I personally shoot for a break even cost of less than 12 months.

Below is a sample of various refinance fees you may have to pay:

Mortgage Refinance Fees

The Pain To Refinance Factor

It would be nice if one could just snap one's fingers and change the terms of a loan. Unfortunately, it's not that simple and you need to spend at least five hours of your time speaking to your mortgage representative and preparing and signing the paperwork.

Further, the whole mortgage refinance process could take more than three months, as was the case with my previous mortgage refinance. A good agent should be able to tell you all the necessary documents you need to get things going.

The mortgage process generally takes about a month and a half given the bank needs to pay off the loan, send an appraiser to figure out the loan-to-value ratio, check your income and assets, go through the title company to get the proper documents, pull insurance records from the homeowner's association, and get you to sign everything. It's the underwriter who is going to give you the hardest time, so be prepared for battle.

The less you make, and the less busy you are, the more you should look into refinancing! If on the other hand, you're happy with your loan, don't have a lot of time, and make a ton of money, your time is worth more than the headache you will go through to save $16,000 bucks in the example above.

Think Like An Investor When Refinancing

A lot of people think that all debt is bad. These are probably the same people who probably haven't been able to successfully leverage debt to build their net worth as much as they could. I do believe that too much debt is bad. The banks have determined that having a debt-to-income ratio of over 42% will not qualify one to refinance or get a loan.

As an investor or CEO, one of your goals is to utilize the right mix of debt and equity to provide the highest return on equity possible. The key is to not take on too much of either to avoid risk of insolvency. When interest rates are low, borrowing money becomes cheaper than raising money through equity. When interest rates are high and equity valuations are low, the reverse is true.

If you are a mortgage borrower, then you actually want inflation to come back. Inflation means your underlying assets – in this case your home – is inflating at a higher rate than before.

You want inflation as an asset owner. Meanwhile, inflation will pull interest rates higher, making your mortgage that much more valuable to HOLD. If you paid off your 2.75% mortgage and decide you want to borrow money again in an interest rate environment that's now at 5%, you're hurting.

In other words, taking out a mortgage for X amount is like SHORTING a bond for X amount. Bond values fall in a rising interest rate environment because investors sell bonds in favor of higher interest yielding bonds.

Bottom line: Do everything possible to refinance your mortgage when you see an opportunity. With rates at 6-year lows in 2020, refinancing now is a smart move.

Real Estate Recommendations

If you don't have the downpayment to buy a property, don't want to deal with the hassle of managing real estate, or don't want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today. It has over 300,000 investors and manages over $3 billion.

Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco and New York City, but over 8% in the Midwest if you're looking for strictly investing income returns.

CrowdStreet is another great platform focused on 18-hour cities where valuations tend to be lower and growth rates tend to be higher. I've personally invested $810,000 in real estate crowdfunding to diversify my real estate exposure and earn income 100% passively.

Fundrise Due Diligence Funnel
Less than 5% of the real estate deals shown gets through the Fundrise funnel

85 thoughts on “How To Get The Lowest Mortgage Interest Rate Possible”

  1. I paid literally NO fees on my last refi to 2.8%. I even got the lender to pay for the appraisal. They make so much money selling the loan, closing costs are for suckers.

  2. We’ve refinanced 3 times within our 4 years of living in our homw. Because I am a veteran I was able to get our first mortgage at 3.65 30 year. After about 8 months, we were able to refinance again 3.35 with a 25 year. Then, August of 2019, I was able to refinance again with a VA streamline IRRL and get a 2.75% 20 year. Just this Feb. 2020, we just closed on rolling a 25k personal loan and remaining mortgage of 125k, into a 15 year 2.5% rate. The moral of the story is this… is not so much the loan amount, but it is the rate and time that you can save from refinancing. Best wishes to all, but I was able to knock off about 11 years of interest through refinancing. You have to do those tricks if your combine income is less than 76k for a family of 4.

  3. Hi,
    I am in the same situation now where bank only looks at K1 income for past 2 years. They don’t look at W2 income at all. How do I circumvent this problem and get loan approved? They are not even ready to look at the assets. Instead of looking at the affordability of a person they just look at 2 years of either W2 income or K1 income.

  4. Stumbled upon your site and I just wished I had read this article earlier…

    We’re in the final stages of having our home built and with that we’re also preparing on locking our rate…
    Our mortgage broker is offering an interest rate that seems high and not competitive at all. Our loan is 675K, 80/15/5 (4.5% on first trust and 4.0% on second). Our credit is in good shape(790) and our debt to income is low. What are your thoughts?

    We’re first time home buyers and would appreciate any feedback.

  5. Pingback: Kiva Loans: Alleviating Poverty Using Microfinance | Financial Samurai

  6. Pingback: The Best Way To Make More Money Online: Become An Authority Affiliate |

  7. Pingback: Does Remodeling Pay Off? Probably Not! | Financial Samurai

  8. Sam–I was wondering what you thought about a cash out refinance that we are considering. Currently, we have a 30 year loan @ 3.25% (3 years into loan) on a loan that started $370K but is now around $345K. The home is currently assessed around $1.25 million.

    We are considering refinancing and cashing out around $150K. The new loan terms would be $500K @3.25% 7/1 Arm (same rate but different type of loan). We would invest the cash in bonds and index funds for 5-7 years. We would add $1500 per month until we have around $450K cash. We have talked to numerous lenders and none can beat this rate. (Wish I had your 2% rates.)

    On the other hand, we can continue saving around $3K a month–adding to our $10K in total cash savings. But I am concerned that keeping this current loan would result in most of our money being tied up in our primary residence and very little cash for our next home purchase. I would like to use the flexibility of the cash to eventually buy another primary residence and rent out our current home. It is so hard to buy another property without a significant down payment in hand plus 10% in reserve. We would be purchasing in an expensive area in CA.

    What do you think? Refinance and put $150K in savings to grow or keep our current mortgage?

    Keep up the good work. I find your blog thought provoking and positive.

  9. So on my previous property, I was locked in (So Cal) on a 15 year loan on my condo at 3.25%. Sold that, rolled the equity over (lived there 4 years) and closed on a new build house with my wife in December. We locked in a 4% rate for 30 years for a 494 loan amount on a place that is worth around 725. I ended up using the builder financing because of the perks, but have a friend who is a broker. She has done one of my loans before, and can refi me at 0 point, 0 fee, $0 closing costs to 3.625, with it really costing me nothing. Do you think it’s worth it at this point to do it, or hold out for maybe getting 3.5? We are only 1 payment into a 30 year, no pre payment penalty, and would save about $110 a month.

    I have considered throwing more money down to get a rate break at a lower mortgage amount, but with rates being so low, I would rather keep the cash to try to buy a rental in 3-5 years. We are in our late 20s, and combined make just over 200k/yr.


    1. I’d take that deal. Saving .375 with zero costs is good. No way to know if rates will dip slightly lower, but keep this in mind: they have been very low for a relatively long time, so the general tendency is for rates to get pushed back up. i.e. Any “bad” economic news (like recently in Europe) will reluctantly push rates down a bit; any “good” economic news will enthusiastically push rates higher. The general tendency is to go back up. I’m sure there’s a fancy economic buzzword for this phenomena…Its related to elasticity, weighted average…….anyone?

  10. Per my comment above, why do you think rates will not go up mid to long term? And don’t you see the value of debt investment in RE if you’re holding long term? I’m not the only CA guy that’s made bank with that strategy!

      1. No work stage. I’ve been living off my RE investments since 2004. Asset values and rents have seen tremendous growth in SF over the last two decades.

  11. Hi Sam.
    This is one awesome inspiring blog you have here. I’ve been reading for five days and still can’t get enough of the thought-provoking financial ideas.
    My situation is this. I have a primary residence in San Jose,ca with $360k at 3% 15yr worth $1mil… Was refied in 2012. I have a rental property in Redondo Beach,ca at 320k at 4.5% 30yr worth 700k and rents for $3250. I have no other debt and have gross income of $250k yr. I got excited when reading another one of your posts about and making 7 to 8% return. I was thinking of leveraging up with taking some cash out on a refi with 5/1 arm… and using the money to invest in Would you consider this too risky a proposition? The other option is to invest in another place in the Bay Area but feel I have missed the boat with the astonishing price increases over the last 3 years.

    1. Howdy Jason,

      It depends on your current income and net worth and risk tolerance.

      I got 7.4% a year from Prosper with a concentrated portfolio of A loans. I didn’t do a thing. If you lend over 100 notes and with A ratings you’ll probably be fine while paying a sub 4% interest rate.

      But it all depends on those other variables!

      1. Gen Y Finance Guy


        Few Questions. How long have you been using prosper loans? Do you think those kinds of returns are normal? Do you pick the individual loans? What is the max you allocate to any one loan?


  12. Hi Sam,

    I have a fixed rate 30-year loan at 4.125%, that I started about a year and a half ago. Refinancing on a 5-year ARM at 2.89% could save me about $300 per month. I plan to stay in this home for the unforeseeable future (hopefully til it’s paid off). Does it make sense for me to refi to the 5 year arm considering my “long-term stay in my current plan” :-).


  13. 15 yr fixed is 2.75, will try out FS-DAIR, thanks!

    Been using Personal Capital for about 6 months, maybe now is the ideal time to use the free first personal consult :-)


  14. Hi Sam,

    Stumbled upon your site this past summer, love it, I’m glad you update with at least 3 regular posts a week – to me a strong driver to keep me coming back to read (unlike some other blogs).

    We have a rental property, 229K on mortgage w/ 17.5 yr left on 20 yr fixed @ 3.625% (finish Q3 2032). Right now looks like we can refi to 15yr @ 2.75% where P+I is ~$75/mo higher. This saves approximately 30K in interest over life of current loan (~80K down to ~50K). If we pay $7.5K lump sum each January until the end of current loan we can pay the same amount of interest (finish Q1 2026) or monthly $575 (finish Q3 2026). These cut almost 4 years more off term of loan than refi which would be Q1 2030.

    I just noticed refi (even points) can be deducted as part of expenses in tax return. It seems to me the best bet is refi then even though the term to pay off is longer (though not as long as doing nothing) since it’s the same amount of interest to be paid over the life of the loan compared to self prepay options. 2027 our oldest will start college and 2030 our younger child will. From our standpoint – is refi the best move financially (leaving peace of mind/ pay early mindset out of it) – what are your thoughts?


  15. Unless you definitely plan to sell your home in a few years it doesn’t make any sense to get a 1-3-5 year variable rate loan. Especially if you’re thinking of keeping it as a rental once you buy your new home.

    The notion that if rates shoot up, say in 5 years, that you’d just pay off your mortgage with (presumably) other assets sounds like a foolish idea to me. Where else can you lock in a huge amount of money for 30 years for about 3.5%! It makes MUCH MORE SENSE to lock in a low 30 year rate, and use any cash you have/will obtain in the future to make other investments with.

    Frankly I’m loading up on this cheap debt for my all my RE assets. With sub 4% asset debt fixed for 30 years, I know I’m set for life with my RE cash flow. It’s a no brainier folks.

    1. Rates have been going down for around 35 years in a row now. What makes you think rates are now going to shoot up in five years?

      Do you also plan to take 30 years to pay down your mortgage?

      I’d much rather pay 2.25% than 3.5%.

      Where are you buying?

      1. I suspect my business model is different from yours. I buy RE in SF and hold for the long term. Assets go up in value, I refi, and buy more, all while controlling cash flow. So I’m perfectly fine having long term debt, and owning 2x to 3x as much property than being free and clear. It’s a great model for an appreciating market like SF.

        Other people’s business model is that they make their money elsewhere (not from RE) and use RE as secondary investments. I made all my money from RE as primary investments.

        As for rates going up, as you know it’s all going to depend on macro and global economic policies. But yes, I suspect that eventually we will hit inflation, and it may not be pretty. Now Europe is biting into the QE apple as well. I think it’s a matter of mid term time (5-10 years?) when a burrito will be $20. Do you honestly believe that low rates will be prevalent 10-20 years from now?

  16. Chris Guthrie

    Perhaps I’m crazy but I’ll be paying off my 15 yr fixed mortgage at 2.875% before end of Q1 2015. Home value is ~$210k.

    At that time I’ll have zero debt (personal or business) and sizable savings through my business SEP IRA which I’ve been maxing at $53k a year (and other savings).

    I can be location independent for my job (internet entrepreneur). For the last half decade I’ve been running my businesses I’ve had back to back record years, but after tasting freedom to do whatever I want to in life and business I take little risk on the personal finance side.

    Taking little risk on personal finance side lets me be much more aggressive with my risk on the business side (and has helped produce the gains over the last several years).

    I’m not so confident that the good times will keep rolling. If I was, I’d buy the $1MM+ long term house in Seattle today.

    The last thing I want to do is have a $1MM+ mortgage and simultaneously have one or more of my businesses flounder.

    Or perhaps I’m crazy and I should buy the boo yah house now while the rates are historically low.

    1. Paying off debt is definitely not a bad thing.

      I put a premium on living in a nice place as well as going on comfortable vacations. Everything else, not really.

      Each person is different. If you can comfortably make $15,000 a month gross or more, paying $4,000 P+I for a $1,000,000 Mortgage is reasonable as that’s less than 30% of gross salary.

      I’d take risk in business and in investments as well. Diversify the risk taking!

      1. Chris Guthrie

        Good points. I think ultimately the challenge for me is that because we can live anywhere it’s hard to decide on just one place to stay.

        Friends / family keep us to WA. Perhaps we keep the cheap place and airbnb 6 months out of the year to various cities around the US to pick which one we like most.

        Seems silly to be able to live anywhere and yet we’re drawn to the most expensive place in WA – Seattle.

  17. Gen Y Finance Guy

    We bought our house in February of 2014 with an FHA loan at 3.75% with 1.35% PMI ($370/month of wasted money). At the time this was the best option for us based on our liquidity . The plan was always to refinance out of this in a year.

    However, things moved along faster than expected. In September of 2014 we refinanced into a 5/5 ARM at 3.675% and no PMI with Navy Federal Credit Union. So this increased our cash-flow by almost $400/month. This was a no cost refinance through Navy Federal. The only cost we had to cover was the appraisal of $375 and title of $600. Escrow was free since my mother in-law owns an escrow company. So the payback was less the 3-months.

    At the time I had not devised or contemplated the goal of paying off the mortgage in 5-7 years. This post has made me set a reminder to look at rates again towards the end of the year and consider refinancing into a 5/1 ARM, which at Navy Federal is about 2.5% or about 1.675% lower.


    1. Gen Y Finance Guy,

      How was your experience refinancing with Navy Federal? My wife and I are in an almost identical situation…just purchased our house in March and went with the FHA loan since it was the best option for us (mainly because of credit requirements and fear of not making our closing date). However, our plan is to refinance within the next twelve months to one of Navy Federal’s ARMs.

      Right now I’ve got my eye on their 2/2 ARM because of the lower origination fee, no PMI, and extremely low rate which is capped at a 1% increase/decrease each time the rate adjusts. Was the refinancing process with Navy Federal particularly arduous or cumbersome? I don’t personally know anyone that has gotten a mortgage through them and I have also had a difficult time finding reviews of their mortgages online.

      1. Gen Y Finance Guy

        Hey JB,

        The refinance process was awesome with Navy Federal. They really have a well managed process and very nice loan programs.

        Like the 2/2 ARM that you are considering the 5/5 ARM that we went with had no loan origination fee or PMI. The capped increase is 2% ever 5 years with maximum interest rate increase of 5% over the life of the loan.

        In either program you will still need to pay for an appraisal, escrow, and title insurance. But those costs are very minimal. Our pay back was less than 3 months.

        Good Luck!


        1. GYFG,

          That is great to hear! I have always had wonderful experiences with Navy Federal, and we are looking forward to getting away from our current FHA mortgage.

          Thanks for getting back with me!


          1. Gen Y Finance Guy

            No problem.

            We are saving almost $400/month due to the refinance. A big piece of that was getting rid of PMI. And then our interest rate dropped slightly from 3.75% to 3.675%.


            1. Hi Gen Y

              I’m in exact situation with you at the moment. I’m trying to taking out a FHA loan on 4-unit property. The loan will probably be around 250k. I spent hours and hours searching local credit union and nothing really has no PMI program for 1st time home buyer. How do you get in Navy Federal CU? I don’t have any family member that in Navy. Do you know anywhere else that i can get no PMI. PMI sucks cause it’s taking away so much cashflow !!!

            2. @Ton – There’s no such thing as a no-PMI FHA loan, they do not exist. ALL FHA loans require PMI no matter what down payment is used. The ONLY way to not have PMI is either to put down 20% or get a loan through the military loan program.

            3. Dominic @ Gen Y Finance Guy

              Ton – I don’t think you are looking for an FHA loan program without PMI, rather a loan option that doesn’t require PMI.

              Navy Federal Credit Union has several different loan options. The one I chose to go with was the 5/5 ARM. Not only does it not have PMI, but it was a no cost refinance.

              Have you tried to go to apply for an account with them yet? Before you can get a loan you need a savings account with them. They have several different options to qualify for membership. It’s worth a try.

              Good Luck!


  18. This is a beast of a post and super helpful! I hope you get your refi. You’ve always been super diligent about monitoring rates and taking advantage of opportunities to reduce your rates through refinancing. Having a great relationship with your banker must help a lot. And yeah shopping around really is worth it. There’s a lot wide ranging offers out there. Best of luck!

  19. Could you please share the Chase contact that you had? The best I am seeing today for a 5/1 ARM and 30 yr fixed jumbo is at 2.875% and 3.75% respectively on zillow. This is for a 80% LTV and a townhouse.

      1. The mortgage is substantial at around 725K. And yes, I have 2 Chase credit cards and a checking account with Chase.

  20. Thank you very much Sam, for the informative post!
    I just closed my loan on 30–Yr fixed on a Single Family home and with 4.375%, loan amount-$531k, no closing costs. Should have gone with 5/1 or 7/1 ARM, unfortunately no guidance from Mortgage Broker. As I gone thru the disclosures, There is no Clause/minimum Timeframe for refinance, But as I asked my mortgage broker, they need 4 months to re-fi as they will get commission after 3/4 months. Should I go ahead and start re-fi as the rates are now Historically low, I don’t want to harm the mortgage Broker business but now the rates are lowest and this Broker did not guide me anything during the Loan product selection.

    1. Hmm, well, if u refinance with the same broker, who is confidence s/he can get it done, s/he will still get paid for your loan. Just extra work from both sides.

      4.375% is high in this environment. I’d go for it and try and get a 5/1 arm at 2.5%. Your loan is a good size.

  21. Hi Sam-

    Thanks for the useful post. I have a question you may be able to help me with loosely based on this:

    “Furthermore, my debt-to-income ratio could be a problem because 100% of my 1099 (freelance income) won’t count for 2014 because banks require two years of 1099 income, and I’ve only got 14 months worth.”

    I have a corp to corp relationship now with my client (this started just this month). I established an LLC which in turn pays me. If I pay myself through a payroll service like PayChex or ADP, will I still be able to get a mortgage? I have no idea how a bank looks at this situation.

    The mortgage business cracks me up. We bought our last home and got a mortgage for not much more than $100,000. Just like you suggested, rates were low (3.25% for a 15 year) so we wanted to leverage. Anyway, we submitted all of our documents and when it got close to closing day, they had a question about one $5000 money transfer between bank accounts. We do everything online and the banks systems were down for an update, so I couldn’t produce the document. We had to delay the closing because of this. Now, keep in mind that I make > 100K year, have a credit score of 820, had $700,000 saved up at that time and had been at the same job for 10 years. Really bank, really!?!? It’s funny that EVERYTHING is based on current income. If you $100,000,000 in the bank but no job, no mortgage.

    1. Depends on how big your Mortgage. Since you make $100k+ and I believe you want to stick with your current home, I have to imagine it will be no problem. Your LLC income can be looked as a bonus, but I doubt they will count it in your income as it just began. 2 years to count based on my feedback from Citi and Chase and LendingTree.

  22. Sam, your article could not be more timely. My wife and I are building a house which will close this summer and I’ve been sweating the decision to lock in the rate now (for a price of course) or believe that rates would hold through the summer (news from the Fed seems promising).

    Additionally, I also have been weighing the pros and cons of paying off student loan debt with a recent large gift ($100k) received which would cover some, but not all of the loans. We have 8 loans at 4-5.5%. The largest loans are at 4%. I’m thinking that you’re math in this equation would make sense for how best to deploy the money received.

    “Take the [loan] amount and multiply it by the difference between the interest rates e.g. $1,000,000 X (2.625% – 2.25%) = $3,750. Now take the cost of refinance and divide it by the interest savings to calculate a truer break even number.”

    PS. We make your salaries in your “optimal” range, so the student loans aren’t a long term concern.

    1. Hi Matt,

      That’s cool you’re building a house. Rates might go up a little bit this year, but I highly doubt the 10-year yield goes up by more than 50bps this year. I’m in the camp of low interest rates for our careers. May sound crazy, but that’s my stance I’ve been saying since 2000 and on FS since 2009.

      If I fail my refinance, im not sweating it because I will try again in November, once my 1099 income counts (2 years) and then I will have no problem.

        1. Ha! Glad J. Yell and the hoards of economists out there are listening. Low rates for life! I no longer get anxious about not hitting the exact low interest rate to refinance anymore because I’m confident there will be more opportunities in the future. I’m just trying to time it so that I refinance in the last half of a 5/1 ARM e.g. year 4 or last year, in order to re-lock for 5 years for the “just in case” security.

  23. Hey Sam,
    I was just about to ask what a ‘good’ 30 year rate was with the current market! (Then I saw your 3.125 comment)
    Mind enlightening me on how you come up with what you consider a good rate?

    Apparently December of 2012 was the worst time since 2011 to get a loan! I’m sitting at 4.625 thinking things weren’t too bad…

    I looked on lending tree and found some options to refi; and there’s some serious potential.
    3.25% 30 year — 2.6% 5/1 ARM

    Time to start running the numbers and evaluating if I might make a move in the next 5 year, or if sticking with another fixed rate is the way to go.
    Thanks for the article!

    1. Nice job doing some digging!

      I watch rates like a hawk, so the numbers are based on my experience. There’s too factors I look at most closely: the 10 year yield and lending spreads.

      Rates were low, but not as low in 2011-2012 bc banks kept lending spreads high as they were too scared to lend. Now that the economy has recovered more, banks are getting more aggressive. I figure out the lending spreads by simply doing what you did and ask or check online. I have a benchmark of where a 30year fixed is and a 5/1 arm is at a certain 10 year yield, and then I compare and take action if the savings make sense.

      It is an annoying 2-3 month process, but it feels good knowing that at the end of it, I took action to save $300/month for at least 5 years.

  24. Our 30 year rate is at 3.625% on the house we bought in 2013, and after some calling around and searching on Lending Tree, it seems that’s one of the lowest available, so I probably won’t pull the trigger, but will keep looking.

    1. It’s good you’ve checked. I’m pretty sure you can get the rate down to 3.375%, but it depends on your loan size, credit, carrots dangled etc. 3.625% is not bad at all, but I would take time reading my article on why I think borrowing at a 30-year fixed is not optimal.

      5/1 arm at 2.5% are common place now. A 1.125% interest spread is large.

  25. Great blow by blow on refinancing reasons and hurdles.

    The most interesting point to me was how you managed to get the rate you needed: personal relationships.

    Building that relationship at Citi and being able to track him down at his new position, then knowing you had the incentive to get him to jump, made all the difference. Having the substantial assets to be an attractive client also helps.

    What was your backup plan if Chase hadn’t come through? Play the Lending Tree offers against each other?

    1. Yes, a lot of it is relationships. Everything is negotiable!

      My backup plan is to go back to Citibank and tell them how serious I was about moving this big loan away if they don’t do something. If nothing, then I just wait till end of year when my 1099 income will count due to two years.

      I use LendingTree as a quick price checker to make sure I know as much as what the market has to offer to put pressure on banks that could win more assets from me if they match or beat.

  26. I have to ask a question here.

    If I plan to sell my house within the next 5 years or so, isn’t it possible that refinancing will put me in a situation where I recoup less equity at the time of sale? Despite lowering my payments.

    How do you account for this, or in your case are you not planning on selling any time soon? Are you investing the money saved each month?

  27. Sam – great post and congrats. The 5 hours of shopping and months of waiting start to become a little more bearable when you consider the hourly rate you end up being paid (which is your case sounds pretty nice)! Too many times we allow tired-head over a shopping + bureaucratic process to keep us from picking up bags of money.

    One other thing for folks to consider – some lenders have a homeowner option to reset an ARM once (or maybe more) during the loan life. You get to jump down to their current rate, and it doesn’t change your loan duration. You lose out on the competition – you’re just getting your own institution’s current rate (we’re with a credit union and they beat the market) – but you don’t need to re-appraise and I had only to pay a pittance fee for the trouble; our payback was 1.5 months. It also took us only a week or so, and saved almost all of the admin hassle.

    It may not be the best option for everyone, but it’s a good first step to check if you don’t want to go the full re-finance route.

  28. You mentioned banks will not count any 1099 income, but what about Schedule C income from a sole proprietorship? My wife and I each make $40k-$50k yearly; she’s a regular W-2 worker and I’m self employed. Combined we have $200k in the bank and expect to put 20% down on a 300k house. Will we have a problem with my non W-2 income? Also, 80% of my revenues are in the last quarter of the year, so right now I have hardly anything to show for 2015.

    1. I forgot to mention that this business has been in operation for at least the past 7 years as my sole source of income.

  29. Unfortunately, I just locked up a refi to a 30yr fixed before I read this post. Thinking back, I should have refi’d to a cheaper 5/1 option since I’ll likely be in this property for less than 5 yrs. Needed to do so to get rid of PMI on a 400k loan. Would you recommend turning this back into a 5/1 ARM when I upgrade into a nicer property and keep this as a rental?

  30. Another Reader

    Hmmmm…rates must have gone up. I can’t find any deals close to that, or even your Lending Tree quote. How about a referral to that Chase loan officer?

    However, at 3.125 for a conforming 30 year fixed on my house, I’m not that strongly motivated. 30 year rates seem to be up this week, after nearing the late 2012 lows last week. Now if I could score a deal for a few of the rentals….

  31. Great stuff. I was somehow able to get a 30 year fixed at 3.00% on $158,000 mortgage back in April 2013. It would be really hard for me to breakeven in a reasonable amount of time even if I was able to get a lower rate with a 5/1 ARM. It would seem that in order to breakeven in a reasonable amount of time one would need a mortgage of sufficient amount, i.e. $500,000+, and/or need a reduction of 100 basis points or more to offset the expense of the refinance.

  32. I wish I had read your post and a previous one about ARMs prior to buying my co-op with a 30 year fixed interest rate of 4.3%. However, co-ops are a different animal and I didn’t want any delays (my loan processor at Chase was incompetent enough as it was). I’ve considered refinancing (is there a 6 month seasoning period I need to wait?) It would also take about 20 months to make back the closing costs since my mortgage is only 196,000 and I’d only save like $150 a month. I don’t plan on moving for about 7 years at which time we’d probably have outgrown the place when our family grows.

    1. Give your mortgage lender a ring about pre-payment penalty. There generally is a minimal duration of 3-12 months, but not longer. $196,000 is a relatively small loan, especially for NYC area? It’s smart of you to get in, and THEN refinance when the opportunities arise. I’d inquire b/c 4.3% for a 30-year fixed is pretty high. I bet you could get that down to 3.5% now.

      1. It’s a co-op in Queens. I’m thinking about going with an ARM as per your posts since I’m pretty sure we’ll move in 7 years or so (give or take). So a 5/1 or 7/1 ARM can get me down to 3% or less.

  33. Sam – We just bought a house without financing, on Cash. Now I was wondering should I refinance with 5/1 ARM @ 3% and get some of my cash back and payoff my other mortgage which is at 4.25% or invest the cash to get anything more than 4% return. How would I do my math here..
    The way I look at it is, its cheap money to borrow @ 3% for next 30 years

    What are yout thoughts

  34. It would be nice if making modifications and such would be easier. The fact that they’re bundled and sold immediately is what likely prevents this. As a mortgage holder, wouldn’t it be nice to potentially have a one-time-per-loan option to withdraw equity and add a year on the back end, as an example. Instead, you either need to go through a whole home equity loan process or 86 the whole thing and start over from scratch.

  35. Sam,

    One reason to consider not refinancing is if you have paid enough principal on your current mortgage that the reduction in interest rate would not make up for extending the loan duration. I am 3 years into a 15yr loan, and even with a 5/8ths (0.625%) lower interest rate available today, it wouldn’t save me total interest dollars over the life of the loan. True, my cash flow each month would be increased, but I’d rather minimize the overall cost.


    1. It can still make sense… for example, if you refinance and continue to make the same payment you currently make (paying extra principal each month). In this scenario you could very well come out ahead, with a break even not too far off in the future.

    2. John, the new loan would pay about $1,950 a month in principal down vs. $2,100 a month. I can always make up for the principal payments by paying extra.

      But, at 2.25%, I’m definitely not paying down extra anymore. I’ve got a 3.375% rental property mortgage I plan to slay first.

      Good to comment to note though. Thx!

  36. Great post, Sam!

    I’ve been following the daily rates for about two weeks hoping the 30yr FMA would hit 3.5% at which point I was going to refi. I currently have a 30yr FMA at 4.5%. Think rates are going to keep dipping a bit or are we bouncing back upwards? I am planning on floating as I think there is some left to give.

    Interesting to see you use LT. I may have to give it a try. I have been calling and talking in person with lenders. Call me old school (even though I’m only 29) too but I like to be able to make eye contact when negotiating on big ticket items like this and cars.

    1. Nobody knows the future T, but a general rule is if you can find a 50 bps difference, and can break even within 20 months, I say go for it.

      I definitely don’t think rates are going up for the next several years, if our entire careers. Right now we are seeing rates come down AND spreads come down b/c banks are trying to lend more aggressively again.

      I’m old school too, and use LT as an online check, just like I use Amazon or any online property as an online check. But if LT will provide me the lowest rate and not just match, I’m going with whomever they refer. Money knows no boundaries.

  37. Can you explain the following from your post further?

    “The easiest way to calculate the interest savings is to take the mortgage amount and multiply it by the difference between the interest rates e.g. $1,000,000 X (2.625% – 2.25%) = $3,750. Now take the cost of refinance and divide it by the interest savings to calculate a truer break even number.”

    In this example, if the cost to refi is $3K, this gives you a break even of 0.8 (3,000 / 3,750 = 0.8). How does 0.8 represent the break even number? Im trying to refi now and this would be helpful to know. Thanks

    1. CT,

      0.8 is measured in years, so this is about 10 months time or less than the 20 months that Sam mentions is his sweet spot. If you are planning to stay in the house for at least 5 years, this will be a worthwhile return.


  38. My wife and I are currently working on a refinance now of our 30-year mortgage. There really isn’t any reason not to explore the market and see what opportunities exist to lower your rate. While $100 here or $200 there doesn’t seem like much, compounded together you’re saving a tremendous amount of cash over the long haul.

    Another reason to refinance is the potential to convert a primary residence into a rental property at some point. It is so much easier to refinance as primary residence, so take advantage while you can. The lower the payments you get now, the higher the cash flow down the road should renting ever be an exit strategy for that particular property. Assuming we finalize our current refinance process, we’re sitting on a property that will cash flow $600 or so per month. Not a bad place to be when considering different exit strategies years from now.

Leave a Comment

Your email address will not be published. Required fields are marked *