“I’m 8 Years Into My Loan & My Rate is 3.625%, Should I Refi?”
JVM: READY FOR REFI’S!
First and foremost, JVM is open and ready to take on ALL refinances again!
We had to temporarily shut them down last summer simply b/c we locked in so many that we swamped our system.
But, now that we have cleared out our pipeline, aligned with a new (much faster) mortgage bank, hired ten more people and significantly improved our systems and processes, we are ready for every refi that comes our way.
8 YEARS INTO LOAN – SHOULD I STILL REFI?
We often get this question from borrowers hellbent on paying off their mortgages, and our answer is usually an emphatic “YES!!!” BUT – not always.
EXAMPLE OF WHEN YOU SHOULD REFINANCE
A borrower obtained a $600,000 mortgage at 3.625% in 2012 with a payment of $2,736/month.
Her balance today would be about $497,000, and she could easily obtain a no-cost refi at 2.75%.
This would give her a new payment of $2,029 (a savings of $707 per month).
In 22 years (when her current loan would be paid off if she did not refi now), her balance would be about $175,000.
But – if she SAVES that $707 every month and earns even 5% on the money, she will have about $339,000 in 22 years – almost twice the amount needed to pay off the remaining balance.
PLUS – that saved money is added liquidity that can be accessed during times of need (medical emergency, job loss, home repair, tuition, etc.).
The key of course is saving and investing the proceeds from the lower payment.
WHEN WE DON’T RECOMMEND REFINANCING
Do we always recommend refinancing when we can lower a borrower’s rate? Nope.
Yesterday, an agent asked me about refinancing even though her rate was 3.75%. She was, however, 11 years into her loan and her fixed payment was surprisingly low (for reasons that still escape me).
Refinancing would not have lowered her payment enough to make restarting the amortization worth it, even if she saved and invested every penny resulting from the lower payment.
So, I told her not to refinance b/c paying off her loan is her ultimate goal.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167