Given the amount of misinformation continually circulating about mortgage loans, we’re ready to set the record straight – Mythbuster style! Oftentimes, misinformation keeps people from making decisions that could benefit their financial situation. However, through clarity and understanding of mortgage fact vs. fiction, different opportunities never realized before may arise.
Myth #1 – All loans have closing costs that the borrower must pay.
Truth: In exchange for a slightly higher interest rate you can receive a credit back that may cover all of the closing costs involved in the mortgage. This includes paying for the appraisal, underwriting fees and all title fees. Although there are certain restrictions involved (such as owner occupancy, loan size, loan-to-value and credit score), we typically suggest this option when it is available.
Myth #2 – Only Refinance if there is at least a 1% savings to the interest rate.
Truth: If the loan does not have any closing costs that are being paid by the borrower and if the new mortgage balance is not increasing, any level of savings will be of benefit. For example: If a $250,000 loan is currently at a rate of 4.75% and we can do a no-fee loan at a rate of 4.25%, there will be a .5% savings to the interest rate without increasing the balance.
Myth #3 – All loans must be kept for 5 years in order for it to be worth refinancing.
Truth: If there are not any closing costs that are paid by the borrower, the breakeven point is immediate. Therefore, even if there are plans to sell the home in two years, it is worth completing a Refinance to lower the interest rate. The borrower will, in turn, benefit from this lower interest rate for as long as the loan is in place.
Myth #4 – If I have already refinance my loan in the last two years I should not refinance again.
Truth: First of all, the sad truth is that many people have paid thousands of dollars to refinance their home loans two or more times since mortgage rates began to fall in November of 2008. Now that rates have dropped even lower, many are stuck in the dilemma of wondering if they shouldrefinance again. Although the decision to refinance in the past seemed to be good at the time, the reality is that many now owe more on their home loans than they did before they refinance the first time. This is typically the result of receiving bad advice.
Even if a homeowner has refinance recently, it is worth looking at the option again as long as a no-fee interest rate is lower than their current interest rate. If the no-fee interest rate is the same or higher than the current interest rate, it is best not to refinance.
Having a professional mortgage planner who offers superior advice is the way to ensure you are making wise decisions with regards to your home loan. For a no-cost or obligation mortgage review, call my office at 801-501-7950 or e-mail me at firstname.lastname@example.org to schedule your review.