One of the great things about spending at least a little time each week at Gangplank is that when I am there I am surrounded by people who are not in the mortgage business.
And since I play a loan officer mortgage originator on Twitter, to many of the geeks at Gangplank I am that guy they can bounce individual mortgage questions off of.
I ask them geeky questions, they ask me mortgage questions and we get along great.
So this week, I was asked this question:
“Is it true that you should only refinance your house if you can get your interest rate to be one percent lower? Because I got this thing in the mail telling me how much I could save…”
First the easy answer:
In order to know when it makes sense to look for home mortgage refinancing solutions, first figure out how long you plan to stay in the home – this will help you know which of the available loan programs to get. For example, if you know you will be moving in 2 years, right now you can save a significant amount of money by going with an Adjustable Rate.
After you have a good idea of your timeframe, next calculate the total closing costs that you will have to pay (or are rolled into your loan) and divide that by how much you will save each month by lowering your interest rate.
The resulting number can be considered your break-even point and will give you a good idea of how long it will take to recoup your closing costs. You may also discuss this with your mortgage broker when applying for a mortgage loan.
There are more complicated ways to calculate this, but in my opinion – simpler is better for this because this is not the simple rule of thumb that can save you thousands on your next mortgage.
The simple rule of thumb that can save you thousands on your next mortgage is this:
If you choose to work with a mortgage originator that you “got a direct mail piece from”, you will probably pay more (possibly much more) for your mortgage than you need to.
And I speak from experience (note: any mail that comes from me is not “junk”).
Consider these facts:
- Your mortgage originator is not your agent who has a fiduciary responsibility to you.
- Your mortgage originator will charge you as much as he wants.
- Direct mail is expensive – perhaps the most expensive way to acquire a customer.
- To stay in business, you must generate a profit.
My experience + these four facts = you will simply pay more if you get a piece of direct mail and call the number on it for a mortgage.
And you can take that rule of thumb to the bank.
Photo credit: http://www.flickr.com/photos/farronfotos/3472457443/
About the Author: Justin McHood is a mortgage broker with VanDyk Mortgage Corporation. You can find him at Arizona Mortgage Team, on the Zillow’s Mortgages Unzipped Blog, and at most East Valley Friday Nights gatherings. He’s the one in the blue shirt.
The Phoenix Real Estate Guy was started by Jay Thompson, and I have a little blogging problem... he liked to say...
Great points Justin. I've never connected with a mortgage broker or loan officer without being referred to personally introduced by someone I know.
.-= [email protected]´s last blog ..What Sets You Apart From the Crowd? =-.
@Nick,
Thanks for stopping by – it is amazing at how many ways people find a loan officer to work with… and how many of them are "bad".
Keep spreading the "good" ways!
Justin
.-= Justin McHood´s last blog ..One Simple Question Can Separate Posers From Closers =-.
These are great pointers! The general public does need to be made aware of these "advertising falsities" to make sure they get the best rate. I know this is a huge concern of home owners and it is important that they educate themselves on the different options available.
.-= James´s last blog ..Downtown Dallas Living =-.
@James,
Agreed. Help wherever you can to spread the word!
Justin
.-= Justin McHood´s last blog ..One Simple Question Can Separate Posers From Closers =-.
Its very important for people to know their mortgage options. Finding the first bank that will listen to you or your best friends brother is often not the way to go if you want to save money.
-Tyler
.-= Portland Condo Auctions´s last blog ..oct_0179.jpg =-.
@Tyler,
I have some super funny (now) stories about people who went with "their best friends brother" the first time to save money… and then came back after "bad stuff" happened.
Funny point.
Thanks for stopping by!
Justin
.-= Justin McHood´s last blog ..One Simple Question Can Separate Posers From Closers =-.
Great article. Consumers need to ask questions in order to determine what product is best for them. While many people are mislead by advertising, ultimately the consumer has to make an effort to get the facts for themselves and understand what they are signing.
But the flyer is so shiny with bright colors and the family on the front is laughing while holding hundred dollar bills and the originator is smiling and its in ALL CAPS and it screams that this could be ME!!!
@Kyle,
Don't let all of our direct mail secrets out at once!
Justin
.-= Justin McHood´s last blog ..Personal Branding =-.
This article is a great resource. And thanks for the home buyer tax credit post.
I find it very amusing how many people think their rate is the sole factor in making mortgage decisions. Proof we need more financial education in our country.
-Mike