Vail Daily column: To refinance or not to refinance, that is the question
While the title of the column may not be William Shakespeare’s exact words, the question is still a good one in the volatile and erratic mortgage market and interest rate environment. As I have written about and discussed with many friends, clients and colleagues, I have ceased making predictions about where mortgage rates will go. It seems impossible to know if we have seen a bottom for rates or what exactly may cause them to go higher.
At the time when I thought mortgage rates were back to a more predictable pattern, the Brits exited the European Union and global markets went you know where. When events such as Brexit occur and shake all global markets, investors flock towards U.S. bonds and U.S. mortgage debt for the security of the investment. This action drives U.S. interest rates down across the board. Thus, in late June, when Brexit took place, a whole new opportunity for borrowers to refinance their mortgage emerged. Rates on the highly sought after and secure 30-year fixed rate mortgage plummeted back down to the low 3 percent range for the right set of circumstances.
But just because a borrower can refinance their mortgage does not necessarily mean that they should refinance. When I begin to look at particular borrower’s scenario and the potential for a refinance, the analysis is complex. I start with the existing mortgage or mortgages and all aspects of the loan(s) such as: the date when the loan closed and the length of initial term, the current interest rate and the initial loan amount, the amount of interest owed from the outset and how much interest is still outstanding and how much of the principal balance has been paid down. It is of the utmost importance to understand the existing loan before being able to fully comprehend if a refinance is advisable.
Next I take into account what the borrower is trying to accomplish with the refinance and whether or not these goals are feasible. In order to try to analyze this portion of the process, I need to understand the borrower’s qualification. If the borrower is an existing client of mine, then I can get a good idea of the current qualification criteria with a quick phone call or set of emails. However, if the borrower is new to me, then it is probably prudent that I gather some of the necessary credit, employment, income and asset documents.
Assuming that I have a good idea on the existing lien(s) and the borrower qualification, I can begin to craft new financing options for the borrowers. I can analyze options for the same and even shorter loan terms. I can take a hard look at the interest that may be saved over the life of the loan. If the borrower is in fact after a monthly payment reduction, then I look at the reduction and calculate how long it may take to recoup the costs of the loan in the monthly savings.
As values continue to rise throughout the valley, more options are available with the increased equity a borrower may now have. Borrowers can utilize the equity to potentially buy down an interest rate or even take equity and proceeds out of the house in the transaction.
A mortgage is no longer simply a debt used to buy a home. Rather, a mortgage is now a key piece of one’s overall financial portfolio. Therefore, the refinance analysis is something that I take very seriously. With the right refinance scenario, a borrower can see substantial gains financially. However, the wrong set of refinance circumstances can also have a detrimental effect.
William A. DesPortes of Central Rockies Mortgage Corp. can be reached at 970-845-7000, extension 103, and email@example.com.