Everybody needs to refinance right now. I just locked in a 7/1 ARM jumbo loan with $4,000 credit towards closing at 2.125% to buy another property in Golden Gate Heights, San Francisco. It’s nuts how low mortgage rates have com down!
But what’s even more impactful to mortgage rates is the drastic decline in the 10-year bond yield as investors sold stocks and bought bonds as the coronavirus pandemic spread. The higher the 10-year bond goes, the lower the 10-year bond yield goes. And mortgage rats, due to the duration, is more closely tied to 10-year bond yields.
Every homeowner should take advantage of record-low mortgage rates and refinance. But where is the beset place to refinance? I’ve got the answer.
The Best Place To Refinance In 2020
Credible is the best place to refinance your mortgage and get free, real quotes. They are one of the largest online lending marketplaces where banks compete for your business.
Credible pre-screens all its lenders and ensure you only have the most reputable lenders fighting for your business. The lenders all compete for your business so that you can get the best rate.
Free No Obligation Quotes
The great thing about Credible is that you can apply for a no obligation loan online in minutes, and within the hour, you’ll get competing banks e-mailing and calling you about their best rates.
You, the borrower don’t pay Credible a penny. It’s the banks who pay Credible to compete for your business. As a result, lenders are motivated to try and get you the best loan possible to win your business.
Be forewarned the celerity of the lenders can be quite surprising to those who are not used to such quick service. Their e-mails and phone calls will die down after several days once they realize you have gone with another lender, or are not interested in their offers.
I like to use Credible to get quotes in writing and then bring these quotes to my main bank to get them to match or beat the Credible rate.
Using this strategy, I was able to get my bank to refinance my jumbo loan to a 2.125% for a 7/1 ARM. I chose the 7/1 ARM because it was the best deal combined with the duration at the lowest point of the yield curve.
Below is a look at the yield curve where the 5-year yield went below the 3-month yield on March 20, 2019.
Now, in 2020, the 10-year bond yield is even lower, at less than 1%! That’s a ridiculously low rate.
Negotiate Refinance Fees
Despite mortgage rates declining again, there are refinance fees to pay.
The appraisal, application, processing, and underwriting fees for a new mortgage may cost between $1,000 – $1,700. Then there are title and escrow fees may cost between $1,000 – $1,3000 for a total of $3,000.
You can negotiate these fees down. The larger your mortgage, the more credit you likely have from the bank. For example, my loan for a 10/1 ARM refinance is $726,000. This amount is a jumbo loan that enables me to get a $2,800 credit towards closing costs.
In other words, my closing costs will be free or almost free once its said and done.
One common method used by homeowners to help defray the cost of refinancing is to add the refinancing costs to the loan amount.
In the long run, this will cost you more money due to the interest you must pay. But in the short run, it feels great having zero out of pocket costs to refinance your mortgage.
I believe getting an adjustable rate mortgage is better than a fixed rate mortgage. Rates have been coming down since the late 1980s and will likely stay down for the rest of our lives.
Good Refinancing Rules To Consider
A general rule of thumb is that you should refinance if your refinance cost is covered within 12 months. In other words if your refinance costs $3,000, your monthly interest savings should be at least $250. Or, you should be saving $3,000 or more in annual interest expense.
Once again, the greater your mortgage refinance, the greater your savings as the refinance costs are generally fixed.
The 12-month barometer is also on the condition you will live in your house for at least 13 months, preferably much, much longer. The longer you plan to live in or own your home, the more you can afford to violate the 12-month rule.
Stick to at most a maximum 36 months break even given the average homeowner lives in his or her home for only about nine years.
We all like to think that we’ll own our homes forever, but something always comes up. We might get a new job offer, want a bigger house, or decide we want to downside.
Refinancing also takes time. You’ll have to provide your last two years of tax returns, your last two months of pay stubs, and potentially other financial documents to the bank during the underwriting process.
The good thing about refinancing your mortgage nowadays is that many of the documents can be sent electronically. Many banks also use Docusign to transact, which can be done on your phone.
This efficiency progress is HUGE, as it lowers friction and speeds up the refinance process. I’ve refinanced over 10 loans in the past 20 years, and refinancing today is so much easier than the past.
Check the latest mortgage rates online through Credible. They’ve got one of the largest networks of lenders that compete for your business. Your goal should be to get as many written offers as possible and then use the offers as leverage to get the lowest interest rate possible from them or your existing bank. Credible allows you to compare multiple real quotes, all in one place for free.
Once you have some legitimate offers, you show those offers to your existing bank to try and get them to give you a better offer.
Getting the best mortgage rate is all about pitting lenders against each other. Good luck and happy savings!
About the Author: Sam worked in investing banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. He is a real estate fanatic with three properties in San Francisco, one property in Lake Tahoe, and one property in Honolulu.
In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income, most recently helped by real estate crowdfunding. He spends most of his time playing tennis and taking care of his family. Financial Samurai was started in 2009 and is one of the most trusted personal finance sites on the web with over 1.5 million pageviews a month.